SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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KEYNOTE SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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number, or the Form or Schedule and the date of its filing.
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4) Date Filed:
Keynote Systems, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
January 21, 2009
To our Stockholders:
You are cordially invited to attend the 2009 Annual Meeting of
Stockholders of Keynote Systems, Inc. to be held at our executive offices,
located at 777 Mariners Island Boulevard in San Mateo, California, on Friday,
February 27, 2009 at 10:00 a.m., Pacific Time.
The matters expected to be acted upon at the meeting are described in
detail in the following notice of the 2009 Annual Meeting of Stockholders and
proxy statement.
We encourage you to use this opportunity to take part in the affairs of
Keynote Systems, Inc. by voting on the business to come before this meeting.
After reading the Proxy Statement, please mark, sign, date and return the
enclosed proxy card in the accompanying reply envelope, call the toll-free
number or use the Internet by following the instructions included with your
proxy card, whether or not you plan to attend the Annual Meeting in person.
Returning the proxy does not deprive you of your right to attend the meeting and
to vote your shares in person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Umang Gupta
Umang Gupta
Chairman of the Board and Chief Executive Officer
Keynote Systems, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
NOTICE OF THE 2009 ANNUAL MEETING OF STOCKHOLDERS
To our Stockholders:
NOTICE IS HEREBY GIVEN that the 2009 Annual Meeting of Stockholders of
Keynote Systems, Inc. will be held at our executive offices, located at 777
Mariners Island Boulevard in San Mateo, California, on Friday, February 27, 2009
at 10:00 a.m., Pacific Time, for the following purposes:
1. To elect seven members of Keynote's Board of Directors;
2. To approve amendments to our 1999 Equity Incentive Plan to extend
its term to December 31, 2011;
3. To approve amendments to our 1999 Employee Stock Purchase Plan to
extend its term by ten years;
4. To ratify the selection of Deloitte & Touche LLP as Keynote's
independent registered public accounting firm for the fiscal year ending
September 30, 2009; and
5. To transact such other business as may properly come before the
meeting or any adjournment.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice. Only stockholders of record at the close of
business on January 15, 2009 are entitled to notice of and to vote at the Annual
Meeting or any adjournment thereof.
All stockholders are cordially invited to attend the Annual Meeting. Please
carefully read the accompanying Proxy Statement which describes the matters to
be voted upon at the Annual Meeting. Whether or not you plan to attend, to
assure your representation at the meeting, please submit your proxy and voting
instructions over the Internet, by telephone, or mark, date, sign and promptly
return the accompanying proxy in the enclosed postage-paid envelope so that your
shares may be represented at the meeting. If you attend the Annual Meeting and
vote by ballot, your proxy vote will be revoked automatically and only your vote
at the Annual Meeting will be counted.
Important Notice Regarding Availability of Proxy Materials for the Annual
Meeting to be held on February 27, 2009: The proxy statement and annual report
to stockholders are available to you at www.keynote.com.
By Order of the Board of Directors,
/s/ ANDREW HAMER
Andrew Hamer
Secretary
San Mateo, California
January 21, 2009
Whether or not you expect to attend the Annual Meeting, please complete,
date, sign and promptly return the accompanying proxy in the enclosed
postage-paid envelope so that your shares may be represented at the meeting.
TABLE OF CONTENTS
Page
----
Proposal No. 1--Election of Directors.................................................................................. 3
Nominees for Board of Directors.................................................................................. 3
Corporate Governance and Board Matters........................................................................... 5
Director Compensation............................................................................................ 6
Compensation Committee Interlocks and Insider Participation...................................................... 7
Code of Ethics................................................................................................... 8
Directors' Attendance at Annual Stockholder Meetings............................................................. 8
Proposal No. 2--Approval of Amendments to the 1999 Equity Incentive Plan............................................... 9
Proposal No. 3-- Approval of Amendments to the 1999 Employee Stock Purchase Plan....................................... 14
Proposal No. 4--Ratification of Selection of Independent Registered Public Accounting Firm............................. 18
Audit and Related Fees........................................................................................... 18
Report of the Audit Committee.......................................................................................... 19
Security Ownership of Certain Beneficial Owners and Management......................................................... 20
Compensation Discussion and Analysis................................................................................... 22
Executive Compensation........................................................................................... 27
Report of the Compensation Committee................................................................................... 30
Certain Relationships and Related Transactions......................................................................... 31
Stockholder Proposals for the 2010 Annual Meeting of Stockholders...................................................... 31
Compliance Under Section 16(a) of the Securities Exchange Act of 1934.................................................. 31
Other Business......................................................................................................... 31
----------------
The Report of the Audit Committee and the Report of the Compensation
Committee contained in this proxy statement are required by the Securities and
Exchange Commission. The information in these sections shall not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or
under the Securities Exchange Act of 1934, except to the extent that we
specifically incorporate this information by reference into such filings. In
addition, this information shall not otherwise be deemed to be "soliciting
material" or to be filed under those Acts.
Keynote Systems, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
---------------------------
PROXY STATEMENT
FOR THE 2009 ANNUAL MEETING OF STOCKHOLDERS
---------------------------
January 21, 2009
The enclosed proxy card ("Proxy") is solicited on behalf of the Board of
Directors of Keynote Systems, Inc., a Delaware corporation, for use at the 2009
Annual Meeting of Stockholders to be held at our executive offices, located at
777 Mariners Island Boulevard in San Mateo, California, on Friday, February 27,
2009 at 10:00 a.m., Pacific Time. Only holders of record of our common stock at
the close of business on January 15, 2009, which is the record date, will be
entitled to vote at the Annual Meeting. At the close of business on the record
date, there were 14,195,181 shares of Keynote common stock outstanding. All
proxies will be voted in accordance with the instructions contained therein and,
if no choice is specified, the proxies will be voted in favor of the nominees
for director and the proposal presented in the accompanying notice of the Annual
Meeting and this proxy statement. This proxy statement and the accompanying form
of proxy will be first mailed to stockholders on or about January 22, 2009. Our
annual report for the fiscal year ended September 30, 2008 is enclosed with this
proxy statement.
Voting Rights
Holders of our common stock are entitled to one vote for each share held
as of the record date.
Vote Needed for a Quorum
A quorum is required for our stockholders to conduct business at the
Annual Meeting. The holders of a majority of the shares of our common stock
entitled to vote on the record date, present in person or represented by proxy,
will constitute a quorum for the transaction of business. Abstentions and broker
non-votes, as described below, are counted as present for purposes of
determining the presence or absence of a quorum for the transaction of business.
Vote Required to Approve Proposals
With respect to Proposal No. 1, directors will be elected by a
plurality of the votes of the shares of our common stock present in person or
represented by proxy at the Annual Meeting and entitled to vote. Approval and
adoption of each of Proposals No. 2 and 3 requires the affirmative vote of a
majority of the shares of our common stock entitled to vote on the proposal that
are present in person or represented by proxy at the Annual Meeting and are
voted for or against the proposal.
The effectiveness of any of the proposals is not conditioned upon the
approval by our stockholders of any other proposal by the stockholders.
Effect of Abstentions
If stockholders abstain from voting, including brokers holding their
customers' shares of record who cause abstentions to be recorded, these shares
are considered present and entitled to vote at the Annual Meeting. These shares
will count toward determining whether or not a quorum is present. However, these
shares will not be taken into account in determining the outcome of Proposal No.
1, Proposal No. 2 and Proposal No. 3.
Effect of "Broker Non-Votes"
If a stockholder does not give a proxy to its broker with instructions as
to how to vote the shares, the broker has authority under New York Stock
Exchange rules to vote those shares for or against certain "routine" matters. If
a broker votes shares that are unvoted by its customers for or against a
proposal, these shares are considered present and entitled to vote at the Annual
Meeting. These shares would count toward determining whether or not a quorum is
present. These shares would also be taken into account in determining the
outcome of the proposals.
A broker may not be entitled to vote shares held for a beneficial owner on
certain non-routine items, such as Proposal No. 2 and Proposal No. 3, absent
instructions from the beneficial owners of such shares. Thus, if a broker does
not receive specific instructions, the shares held by that broker may be treated
as "broker non-votes" and may not be voted on these matters and, in such event,
such shares will not be counted in determining the number of shares necessary
for approval.
Adjournment of Meeting
In the event that sufficient votes are not received by the date of the
Annual Meeting, the persons named as proxies may propose one or more
adjournments of the Annual Meeting to permit further solicitations of proxies.
Any such adjournment would require the affirmative vote of the majority of the
shares of common stock present in person or represented by proxy at the Annual
Meeting.
Expenses of Soliciting Proxies
We will bear the entire cost of solicitation, including the preparation,
assembly, printing and mailing of this Proxy Statement, the Proxy and voting
instructions and any additional solicitation materials furnished to stockholders
by us. Following the original mailing of the proxies and other soliciting
materials, we and/or our agents may also solicit proxies by mail, telephone,
telegraph, press releases, advertisements, postings on our website or in person.
Following the original mailing of the proxies and other soliciting materials, we
will request that brokers, custodians, nominees and other record holders of our
common stock forward copies of the proxy and other soliciting materials to
persons for whom they hold shares of common stock and request authority for the
exercise of proxies. In these cases, we will reimburse the record holders for
their reasonable expenses if they ask us to do so. We have engaged MacKenzie
Partners to assist us in the solicitation of proxies and to provide related
advice and information support at an estimated cost of $15,000, plus expenses
and disbursements.
Revocability of Proxies
Any person signing a proxy in the form accompanying this proxy statement
has the power to revoke it prior to the Annual Meeting or at the Annual Meeting
prior to the vote. A proxy may be revoked by any of the following methods:
o a written instrument delivered to us stating that the proxy is
revoked;
o a subsequent proxy that is signed by the person who signed the
earlier proxy and is presented at the Annual Meeting; or
o attendance at the Annual Meeting and voting in person.
Please note, however, that if a stockholder's shares are held of record by
a broker, bank or other nominee and that stockholder wishes to vote at the
Annual Meeting, the stockholder must bring to the Annual Meeting a letter from
the broker, bank or other nominee confirming the stockholder's beneficial
ownership of the shares.
Telephone or Internet Voting
For stockholders with shares registered in the name of a brokerage firm or
bank, a number of brokerage firms and banks are participating in a program for
shares held in "street name" that offers telephone and Internet voting options.
Stockholders with shares registered directly in their names with American Stock
Transfer & Trust Co LLC ("AST"), our transfer agent, will also be able to vote
using the telephone and Internet. If your shares are held in an account at a
brokerage firm or bank participating in this program or registered directly in
your name with AST, you may vote those shares by calling the telephone number
specified on your proxy or accessing the Internet website address specified on
your proxy instead of completing and signing the proxy itself. The giving of
such a telephonic or Internet proxy will not affect your right to vote in person
should you decide to attend the Annual Meeting.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. Stockholders voting via the telephone or Internet should understand
that there may be costs associated with telephonic or electronic access, such as
usage charges from telephone companies and Internet access providers, that must
be borne by the stockholder.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, stockholders will elect directors to hold office
until the next Annual Meeting of Stockholders and until their successors have
been elected and qualified or until a director's earlier resignation or removal.
The size of our Board of Directors is currently set at seven members. The
persons named proxyholders in the Proxy will vote all Proxies received by them
in favor of the seven nominees listed below in the absence of contrary
instructions and the proxies cannot be voted for a greater number of persons
than the number of nominees named.
All nominees named below have consented to being named in this Proxy
Statement and to serve as directors, if elected. If, however, any of the
nominees named in the accompanying Proxy are unable or unwilling to serve (which
is not expected) at the time of the Annual Meeting, the Proxies (except those
marked to the contrary) will be voted for such other person(s) as the persons
named in the accompanying Proxy may recommend. The seven candidates receiving
the highest number of votes of the shares present in person or represented by
proxy at the Annual Meeting and entitled to vote on the election of directors
will be elected to our Board of Directors.
The Board of Directors recommends that the stockholders vote FOR the
election of each of the following nominees to serve as members of our Board of
Directors until the 2010 Annual Meeting or until their respective successors
have been elected and qualified or until their earlier death, resignation or
removal.
Nominees for Board of Directors
The names of the nominees for election to our Board of Directors at the
Annual Meeting, and information about each of them, are included below.
Director
Name Age Principal Occupation Since
- ---- --- -------------------- -----
Umang Gupta 59 Chairman of the Board and Chief Executive Officer of Keynote 1997
David Cowan (1) (2) 43 General Partner of Bessemer Venture Partners 1998
Deborah Rieman*(1) 59 Retired President and Chief Executive Officer of Check Point Software Technologies Inc. 2002
Mohan Gyani (3) 57 Retired President and Chief Executive Officer of AT&T Wireless Mobility Services 2002
Raymond L. Ocampo Jr. (2) (3) 55 President and Chief Executive Officer, Samurai Surfer LLC 2004
Jennifer Bolt (1) 44 Executive Vice President, Operations and Technology of Franklin Resources, Inc. 2004
Charles M. Boesenberg (3) 60 Retired President and Chief Executive Officer of NetIQ, Inc. 2006
* Lead independent director
(1) Member of our Compensation Committee
(2) Member of our Nominating and Governance Committee
(3) Member of our Audit Committee
Umang Gupta has served as one of our directors since September 1997 and as
our Chief Executive Officer and Chairman of the Board of Directors since
December 1997. Previously, he was a private investor and an advisor to
high-technology companies and the founder and chairman of the board and chief
executive officer of Gupta Corporation. He previously held various positions
with Oracle Corporation and IBM. Mr. Gupta holds a B.S. degree in chemical
engineering from the Indian Institute of Technology, Kanpur, India, and an
M.B.A. degree from Kent State University.
David Cowan has served as one of our directors since March 1998. Since
August 1996, Mr. Cowan has served as a General Partner of Bessemer Venture
Partners, a venture capital investment firm. Mr. Cowan is also a director of
several private companies. Mr. Cowan holds an A.B. degree in mathematics and
computer science and a M.B.A. degree from Harvard University.
Deborah Rieman has served as one of our directors since January 2002 and
as our lead independent director since April 2004. Since June 1999, Dr.
Rieman has managed a private investment fund. From July 1995 to June 1999, Dr.
Rieman was the President and Chief Executive Officer of Check Point Software
Technologies Inc., an Internet security software company. Dr. Rieman also
serves as a director of Corning Inc., Kintera, Inc. and Tumbleweed
Communications Inc. Dr. Rieman holds a Ph.D. degree in mathematics from
Columbia University and a B.A. degree in mathematics from Sarah Lawrence
College.
Mohan Gyani has served as one of our directors since January 2002. Mr.
Gyani has been a private investor since December 2004. He served as Chief
Executive Officer and Chairman of Roamware from May 2005 to December 2005. Mr.
Gyani was a senior advisor to the Chairman and Chief Executive Officer of
AT&T Wireless from January 2003 to December 2004. He served as President and
Chief Executive Officer of AT&T Wireless Mobility Services from February
2000 to January 2003. From 1995 to 1999, Mr. Gyani served as Executive
Vice President and Chief Financial Officer of AirTouch Communications. Mr.
Gyani is a member of the boards of directors of SIRF Technology Holdings, Inc.,
Safeway Inc., Union Bank of California, Mobile TeleSystems and three private
companies. Mr. Gyani holds an M.B.A. degree and a B.A. degree in business
administration from San Francisco State University.
3
Raymond L. Ocampo Jr. has served as one of our directors since March
2004. Since April 2004, Mr. Ocampo has served as President and Chief Executive
Officer of Samurai Surfer LLC, a consulting and investment company. In
November 1996, Mr. Ocampo retired from Oracle Corporation, where he had
served in various senior and executive positions since 1986, most recently as
Senior Vice President, General Counsel and Secretary since September 1990.
Mr. Ocampo is a member of the board of directors of PMI Group, Inc. Mr.
Ocampo holds a J.D. degree from Boalt Hall School of Law at the University
of California at Berkeley and an A.B. degree in Political Science from the
University of California, Los Angeles.
Jennifer Bolt has served as one of our directors since April 2004.
Ms. Bolt has served as Executive Vice President, Operations and Technology
of Franklin Resources, Inc., a financial services company since June 2006.
Prior to that time, she served in various other capacities for Franklin
Resources, Inc. or its subsidiaries. Ms. Bolt serves as chairman of Franklin
Capital Corporation, director of Fiduciary Trust Company International and is a
member of Franklin Resources, Inc.'s Executive Committee. Ms. Bolt is also a
member of the board of Templeton Global Growth Fund Ltd, Riva Financial
Systems and a member of the boards of other private companies. She is also a
board member of the Juvenile Diabetes Research Foundation. Ms. Bolt is a
graduate of the American Bankers Association's Stonier Graduate School of
Banking. She earned her B.A. in economics and physical education from the
University of California at Davis.
Charles M. Boesenberg has served as one of our directors since September
2006. From January 2002, Mr. Boesenberg served as Chairman, CEO and President of
NetIQ, Inc. before it was acquired by Attachmate Corporation in June 2006. Mr.
Boesenberg has retired after the acquisition. From March 2000 to December 2001,
Mr. Boesenberg served as President of Post PC Ventures, a management and
investment group. Mr. Boesenberg was president and CEO of Integrated Systems,
Inc. (ISI), a provider of embedded systems software, from 1998 until ISI merged
with Wind River Systems in February of 2000. Mr. Boesenberg joined ISI from
Magellan, where he was CEO From 1992 to 1994. Mr. Boesenberg currently serves
on the boards of directors of Callidus Software Inc., Interwoven, Inc., Rackable
Systems, Inc and other private companies. He holds a B.S. in mechanical
engineering from the Rose Hullman Institute of Technology and an M.S. in
business administration from Boston University.
The Board Recommends a Vote "FOR" the Election of
Each of the Nominated Directors.
4
Corporate Governance and Board Matters
Corporate Governance
Keynote maintains a corporate governance page on its website which
includes information about its corporate governance initiatives, including
Keynote's Code of Business Conduct and Ethics, Code of Ethics for Chief
Executive Officer and Senior Financial Department Personnel, Corporate
Governance Guidelines and charters for the committees of the board of directors.
The corporate governance page can be found at www.keynote.com, by clicking on
"Company," on "Investor Relations," and then on "Corporate Governance."
Keynote's policies and practices reflect corporate governance initiatives
that are compliant with the listing requirements of The NASDAQ Stock Market and
the corporate governance requirements of the Sarbanes-Oxley Act of 2002,
including:
o A majority of the Board members are independent of Keynote and its
management;
o All members of the key Board committees--the Audit Committee, the
Compensation Committee, and the Nominating and Governance
Committee--are independent;
o Keynote has appointed a Lead Independent Director;
o The independent members of the Board of Directors meet regularly
without the presence of management. Dr. Rieman, the lead
independent director, presides at these executive sessions;
o Keynote has a clear code of business conduct that is annually
affirmed by its employees;
o The charters of the Board committees clearly establish their
respective roles and responsibilities;
o Keynote's Audit Committee has procedures in place for the anonymous
submission of employee complaints on accounting, internal accounting
controls, or auditing matters;
o Keynote has adopted a code of ethics that applies to its Chief
Executive Officer and all senior members of its finance department,
including our Chief Financial Officer; and
o Keynote has adopted corporate governance guidelines and principles.
Director Independence
The Board of Directors has determined that each of our directors is an
independent director as defined by the rules of The Nasdaq Stock Market, other
than Mr. Gupta, who serves as an employee of Keynote as our Chief Executive
Officer. In addition, the Board has determined that each member of the Audit
Committee meets the additional independence criteria of the SEC required for
Audit Committee membership.
Board Meetings
The Board of Directors met five times during the fiscal year ended
September 30, 2008. During this period each director attended at least 75% of
the total number of meetings held by the Board and by all committees of the
Board on which such director served, during the period that such director
served.
Board Committees
Our Board of Directors has a Compensation Committee, an Audit Committee
and a Nominating and Governance Committee. Each committee operates pursuant to a
written charter; copies of these written charters are available on our website
at www.keynote.com.
Compensation Committee. The current members of our Compensation Committee
are Mr. Cowan, Dr. Rieman and Ms. Bolt. Ms. Bolt serves as the chair. The Board
of Directors has determined that each member of the Compensation Committee is an
independent director as defined by the rules of The NASDAQ Stock Market, a
non-employee director within the meaning of Section 16 of the Securities
Exchange Act of 1934, as amended, and an outside director within the meaning of
Section 162(m) of the Internal Revenue Code. The Compensation Committee
considers and approves, or reviews and makes recommendations to our Board
concerning salaries for our officers and incentive compensation for our officers
and employees. The Compensation Committee also administers our Equity Incentive
Plan and Employee Stock Purchase Plan. The Compensation Committee met three
times during the fiscal year ended September 30, 2008.
5
Audit Committee. Our Audit Committee oversees our corporate accounting and
financial reporting process. Among other matters, the Audit Committee:
o evaluates the qualifications, independence and performance of our
independent registered public accounting firm;
o determines the engagement of our independent registered public
accounting firm and reviews and approves the scope of the annual audit
and the audit fee;
o discusses with management and our independent registered public
accounting firm the results of the annual audit and the review of our
quarterly financial statements;
o approves the retention of our independent registered public accounting
firm to perform any proposed permissible non-audit services;
o monitors the rotation of partners of our independent registered public
accounting firm on our engagement team as required by law;
o reviews our critical accounting policies and estimates; and
o annually reviews the Audit Committee charter and the committee's
performance.
The current members of our Audit Committee are Mr. Gyani, Mr. Ocampo and
Mr. Boesenberg. Mr. Gyani serves as the chair. The Board of Directors has
determined that each member of the Audit Committee is an independent director
as defined by the rules of the Securities and Exchange Commission and The
NASDAQ Stock Market, and that each of them is able to read and understand
fundamental financial statements. The Board of Directors has also determined
that each of Mr. Gyani and Mr. Boesenberg is an "audit committee financial
expert" within the meaning of the rules of the Securities and Exchange
Commission and is "financially sophisticated" within the meaning of the rules
of The NASDAQ Stock Market. The Audit Committee met seven times during the
fiscal year ended September 30, 2008.
Nominating and Governance Committee. The current members of our Nominating
and Governance Committee are Mr. Cowan, and Mr. Ocampo. Mr. Ocampo currently
serves as the chair. The Board of Directors has determined that each member of
the Nominating and Governance Committee is an independent director as defined by
the rules of The NASDAQ Stock Market. Our Nominating and Governance Committee
identifies, considers and recommends candidates to serve as members of the
Board, makes recommendations regarding the structure and composition of the
Board and Board committees and oversees the annual Board evaluation process. The
Nominating and Governance Committee is also responsible for overseeing,
reviewing and making periodic recommendations concerning Keynote's corporate
governance policies. The Nominating and Governance Committee did not have formal
meetings during the fiscal year ended September 30, 2008, but acted through
informal communications.
Consideration of Director Nominees
Our Nominating and Governance Committee generally identifies nominees for
our Board based upon recommendations by our directors and management. The
Nominating and Governance Committee will also consider recommendations properly
submitted by our stockholders in accordance with the procedure set forth in our
bylaws, as Amended and Restated on December 8, 2008. Stockholders can recommend
qualified candidates for our Board by writing to our corporate secretary at
Keynote Systems, Inc., 777 Mariners Island Boulevard, San Mateo, CA 94404.
Submissions that are received that meet the criteria outlined below will be
forwarded to the Nominating and Governance Committee for review and
consideration. We request that any such recommendations be made at least three
months prior to the end of the fiscal year ending September 30, 2009 to ensure
adequate time for meaningful consideration by the Nominating and Governance
Committee. The Nominating and Governance Committee intends to review
periodically whether a more formal policy regarding stockholder nominations
should be adopted.
The goal of the Nominating and Governance Committee is to ensure that our
Board possesses a variety of perspectives and skills derived from high-quality
business and professional experience. The Nominating and Governance Committee
seeks to achieve a balance of knowledge, experience and capability on our Board.
To this end, the Nominating and Governance Committee seeks nominees with the
highest professional and personal ethics and values, an understanding of our
business and industry, diversity of business experience and expertise, a high
level of education, broad-based business acumen, and the ability to think
strategically. Although the Nominating and Governance Committee uses these and
other criteria to evaluate potential nominees, we have no stated minimum
criteria for nominees. The Nominating and Governance Committee does not use
different standards to evaluate nominees depending on whether they are proposed
by our directors and management or by our stockholders. To date, we have not
paid any third parties to assist us in this process.
Stockholder Communication with Our Board
Our stockholders may communicate with our Board of Directors or any of our
individual directors by writing to them c/o Keynote Systems, Inc., 777 Mariners
Island Boulevard, San Mateo, CA 94404. In addition, all communications that are
received by our Chief Executive Officer or Chief Financial Officer that are
directed to the attention of our Board are forwarded to our Board.
Director Compensation
Directors who are employees of Keynote do not receive compensation from
Keynote for the services they provide as directors. Members of the Board of
Directors who are not employees of Keynote receive cash and equity compensation
for their service as directors.
6
Cash Compensation. Non-employee directors were each paid an annual
retainer fee of $25,000 for the fiscal year ended September 30, 2008, and will
receive an annual retainer of $30,000 for the fiscal year ending September 30,
2009; this payment is subject to a director attending at least four of the five
regularly scheduled Board meetings during the fiscal year and at least 75% of
the total number of Board meetings held during the fiscal year. In addition,
members of the Compensation Committee and the Nominating and Governance
Committee are each paid an annual fee of $5,000, and members of the Audit
Committee are each paid an annual fee of $10,000, with the Chairman of the Audit
Committee receiving $15,000. The cash retainers earned for the 2008 fiscal year
by each of our non-employee directors are indicated in the table below. All
directors are also reimbursed for their reasonable expenses in attending Board
and Board committee meetings.
Equity Compensation. Our non-employee directors receive both
automatic option grants and discretionary option awards under our 1999 Equity
Incentive Plan. On the date he or she becomes a director, a new non-employee
director receives an automatic option grant to purchase 60,000 shares of our
common stock. These options vest over four years, with one-quarter of the shares
subject to the option vesting on the earlier of one year following the
director's appointment to the Board of Directors or the first annual meeting of
our stockholders following the grant of the option; the remaining shares subject
to these automatic grants vest ratably on a monthly basis following the initial
vesting date. The vesting of the options will accelerate in full upon a change
of control of Keynote. The automatic option grants have an exercise price equal
to the fair market value of our common stock on the date of grant and a ten year
term. In addition to these automatic option grants, our non-employee directors
receive discretionary option awards annually for committee service and upon
re-election at the annual meeting of stockholders. A non-employee director may
not receive discretionary grants covering more than 40,000 shares in any fiscal
year. On March 20, 2008, the date of our 2008 Annual Meeting of Stockholders,
each non-employee director who was re-elected to the Board of Directors received
an option to purchase 15,000 shares of our common stock. In fiscal 2008, the
Board of Directors made discretionary option awards to non-employee directors
for service on our standing committees. Options for 5,000 shares were awarded
for service on one of our three standing committees. In addition, the chair of
the Audit Committee received an option for an additional 5,000 shares and the
chairs of our Compensation Committee and our Nominating and Governance Committee
each received options for an additional 2,000 shares. The options awarded for
committee service vest monthly during the fiscal year and were fully vested at
September 30, 2008. The options awarded at the 2008 Annual Meeting of
Stockholders do not commence vesting until our 2011 Annual Meeting of
Stockholders and then vest ratably on a monthly basis with each option to be
fully vested at our 2012 Annual Meeting of Stockholders. The discretionary
options also have an exercise price equal to the fair market value of our common
stock on the date of grant and a ten year term; these options will vest in full
upon a change of control of Keynote.
Options were awarded to, and cash fees earned by, our non-employee
directors during fiscal 2008 in the following amounts:
Director Compensation
Fees Earned or Paid in Cash
- ----------------------------------------------------------------------------------------------------
Name Fees Earned or Option Awards (1)(2) Total
---- Paid in Cash -------------- -----
------------
- ----------------------------------------------------------------------------------------------------
Charles M. Boesenberg $35,000 $78,894 (3)(4) $113,894
- ----------------------------------------------------------------------------------------------------
Jennifer Bolt 30,000 $79,700 (3)(4) $109,700
- ----------------------------------------------------------------------------------------------------
David Cowan 35,000 $99,480 (3)(4) $134,480
- ----------------------------------------------------------------------------------------------------
Mohan Gyani 35,000 $98,480 (3)(4) $133,480
- ----------------------------------------------------------------------------------------------------
Raymond L. Ocampo, Jr. 40,000 $98,058 (3)(4) $138,058
- ----------------------------------------------------------------------------------------------------
Deborah Rieman 30,000 $80,028 (3)(4) $110,028
- ----------------------------------------------------------------------------------------------------
(1) The amounts reflect the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended September 30, 2008, in accordance
with FAS 123(R), of stock option awards issued pursuant to the 1999 Equity
Incentive Plan and thus include amounts from outstanding stock option awards
granted during and prior to fiscal 2008. Assumptions used in the calculation of
these amounts are included in the notes to our audited consolidated financial
statements for the fiscal year ended September 30, 2008, as included in our
Annual Report on Form 10-K. The amounts shown disregard estimated forfeitures
related to service-based vesting conditions. These amounts reflect Keynote's
accounting expense for these awards, and do not correspond to the actual value
that may be recognized by the non-employee director.
(2) As of September 30, 2008, each non-employee director had the following
number of shares subject to options outstanding: Charles M. Boesenberg: 100,000;
Jennifer Bolt: 146,000; David Cowan: 190,000; Mohan Gyani: 200,000; Raymond L.
Ocampo, Jr.: 167,000; and Deborah Rieman: 180,000.
(3) An option to purchase 15,000 shares of our common stock was granted on March
20, 2008 at an exercise price of $13.51 per share. The option will vest ratably
over a 12-month period commencing on the date of the 2011 Annual Meeting of
Stockholders and concluding on the date of the 2012 Annual Meeting of
Stockholders. The vesting of the option accelerates in full upon a change of
control. The grant date fair value for each of these option grants was $65,468.
(4) On February 1, 2008, an option to purchase 10,000 shares of our common
stock, with a grant date fair value of $36,662, was granted to each of Messrs.
Cowan, Gyani and Ocampo, an option to purchase 5,000 shares, with a grant date
fair value of $18,331, to each of Mr. Boesenberg and Dr. Rieman, and an option
to purchase 7,000 shares, with a grant date fair value of $25,663 to Ms. Bolt.
Each of these options has an exercise price of $9.86 per share. One-third of the
shares subject to the options were vested on the grant date, with the remainder
vesting ratably on a monthly basis through September 30, 2008.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee has at any time since
our formation been one of our officers or employees. None of our executive
officers currently serves or in the past has served as a member of the Board of
Directors or Compensation Committee of any entity that has one or more executive
officers serving on our Board or Compensation Committee.
7
Code of Ethics
We have adopted a code of ethics that applies to our Chief Executive
Officer and senior financial personnel, including our Chief Financial Officer,
controller and all other employees engaged in the finance organization of
Keynote. This code of ethics is posted on our website at http://www.keynote.com.
Directors' Attendance at Annual Stockholder Meetings
Keynote encourages its Board members to attend its annual meeting of
stockholders, but does not require attendance. Two of our directors attended our
2008 Annual Meeting of Stockholders. Mr. Gupta, Chairman of the Board and our
Chief Executive Officer, has attended all of our annual meetings.
8
PROPOSAL NO. 2
AMENDMENTS TO 1999 EQUITY INCENTIVE PLAN
General
We are asking our stockholders to approve the amendment of our 1999 Equity
Incentive Plan, referred to as the "EIP," to extend the term of the EIP for an
additional two years from the date that the Board approved the amendment and
restatement of the EIP in January 2009. If our stockholders do not approve of
the amendment and restatement of the EIP then the EIP will remain in effect
until it expires by its terms on June 28, 2009.
The amended and restated EIP you are being asked to approve will permit us
to use the remaining number of shares reserved but unissued under the EIP,
562,590 shares as of December 31, 2008 Extending the term of the EIP will allow
us to continue to make the benefits of the EIP available to eligible employees
after its currently scheduled termination date, which the Board of Directors and
management believes is necessary to assist in the retention of current employees
and hiring of new employees, and to continue to provide our employees with an
incentive to contribute to our future success by providing an opportunity to
acquire shares of our common stock.
Below is a summary of the principal features of the EIP, as proposed to be
amended and restated. The only material changes proposed to be made to the EIP
is to extend its term until December 31, 2011. This summary, however, does not
purport to be a complete description of all of the provisions of the EIP. It is
qualified in its entirety by references to the full text of the EIP as proposed
to be amended and restated. A copy of the EIP, as proposed to be amended and
restated, is attached to this Proxy Statement as Annex A.
Plan History
In June 1999, the Board of Directors adopted, and subsequently, the
stockholders approved, the EIP and reserved a total of 5,000,000 shares
thereunder, plus all shares then reserved but unissued under the 1996 Stock
Option Plan and 1999 Stock Option Plan, which were added to the EIP. Both the
1996 Stock Option Plan and 1999 Stock Option Plan were then terminated.
Background on Stock Compensation at Keynote
We firmly believe that a broad-based equity program is a necessary and
powerful employee incentive and retention tool that benefits all stockholders.
Equity ownership programs put employees' interests directly into alignment with
those of other stockholders, as they reward employees upon improved stock price
performance. Without an equity incentive program, Keynote would be at a
disadvantage against competitor companies in the marketplace to provide the
total compensation package necessary to attract, retain and motivate employee
talent critical to Keynote's future success.
A broad-based equity incentive plan focuses employees at every level of
our company on achieving strong corporate performance, and we have embedded in
our culture the necessity for employees to think and act as stockholders.
Historically, Keynote has granted stock options to the substantial majority of
its newly hired employees and to its non-employee directors. This is an
important component of our long-term employee incentive and retention plan and
has been very effective in enabling us to attract and retain the talent critical
for an innovative and growth-focused company.
Purpose of EIP
The EIP allows Keynote, under the direction of the Compensation Committee
of the Board of Directors or those persons to whom administration of the EIP, or
part of the EIP, has been delegated, to make grants of stock options, restricted
stock awards and stock bonus awards to employees, directors, consultants,
independent contractors and advisors. The purpose of these stock awards is to
attract and retain talented employees, directors, consultants, independent
contractors and advisors and further align their interests and those of our
shareholders by continuing to link a portion of their compensation with
Keynote's performance.
9
Key Terms
The following is a summary of the key provisions of the EIP.
Plan Term: June 28, 1999 to December 31, 2011
Eligible Participants: All of our employees, directors, consultants, and independent contractors are eligible to
receive awards under the EIP, provided they render bona fide services to Keynote. Except
for the automatic grant of stock options to non-employee directors, the Compensation
Committee determines which individuals will participate in the EIP. As of the record
date, there were approximately 300 employees and six non-employee directors who are
eligible to participate in the EIP.
Shares Authorized: As of the record date, there are 239,015 shares authorized but not yet issued under the
EIP, subject to adjustment only to reflect stock splits and similar events. Shares
subject to awards that are cancelled, forfeited or that expire by their terms are
returned to the pool of shares available for grant and issuance under the EIP. As of the
record date, there were a total of 5,822,603.5 shares subject to outstanding options
granted under the EIP.
Award Types: (1) Non-qualified stock options
(2) Incentive stock options (which may be only granted to employees)
(3) Restricted stock awards
(4) Stock bonus awards
Share Limit on Awards: No more than 1,000,000 shares may be granted to any individual under the plan during any
calendar year, other than new employees, who are eligible to receive up to
2,000,000 shares in the calendar year during which they begin employment. These limits
are intended to ensure that awards will qualify under Section 162(m) of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), if applicable. Failure to qualify under
this section might result in Keynote's inability to take a tax deduction for part of its
performance-based compensation to senior executives. Also, no more than 20,000,000
shares may be granted as incentive stock options.
Vesting: Vesting schedules are determined by the Compensation Committee when each award is
granted. Options generally vest over four years.
Award Terms: Stock options have a term no longer than ten years, except in the case of incentive stock
options granted to holders of more than 10% of Keynote's voting power, which have a term
no longer than five years.
Automatic Grants to
Non-Employee Directors: When a non-employee director joins the Board of Directors, he or she receives an initial
grant of an option to purchase 60,000 shares of common stock on that date, which vests
annually over a four-year period. Additional grants to non-employee directors may be made
on annual basis, not to exceed 40,000 shares. See "Director Compensation" above.
Repricing Prohibited: Without first obtaining the consent of stockholders, the Compensation Committee may not
(a) reduce the exercise price of outstanding options or (b) grant in substitution for
cancelled options (i) new options having a lower exercise price, or (ii) other awards
authorized under the EIP.
Corporate Transactions: Stock options granted pursuant to the automatic grant provision for outside directors
accelerate in full and become exercisable prior to the consummation of a corporate
transaction on such terms and conditions as determined by the Compensation Committee.
For all other awards granted under the EIP, any or all awards may be assumed, converted
or replaced by a successor corporation. Alternatively, a successor corporation may
substitute equivalent awards or provide substantially similar consideration as was
provided to Keynote's stockholders. In the event awards are not assumed or substituted,
awards under the EIP will expire on such corporate transaction at such time and on
conditions as determined by Compensation Committee. Additionally, the Compensation
Committee may, at is sole discretion, accelerate the vesting of awards.
10
New Plan Benefits
The following table shows, in the aggregate, the number of shares subject
to stock options that will be granted automatically in fiscal 2008 to our six
non-employee directors, pursuant to the EIP option grant formula for
non-employee directors. These grants will be made regardless of whether the
Amendment is approved by the shareholders.
Number of
Shares Subject to Number of
Name and Position Dollar Value ($) Options Restricted Shares
Non-Employee Director Group Fair Market Value 128,000
on date of grant --
Future awards under the EIP to executive officers, employees or other
eligible participants, and any additional future discretionary awards to
non-employee directors in addition to those granted automatically pursuant to
the grant formula described above, are discretionary and cannot be determined at
this time. We therefore have not included any such awards in the table above.
Terms applicable to Stock Options
The exercise price of grants made under the EIP of stock options are not
less than the fair market value (the closing price of Keynote common stock on
the date of grant, and if that is not a trading day, the closing price of
Keynote common stock on the trading day immediately prior to the date of grant)
of our common stock. The term of these awards may generally not be longer than
ten years. The Compensation Committee determines at the time of grant the other
terms and conditions applicable to such award, including vesting and
exercisability.
Terms applicable to Restricted Stock Awards and Stock Bonus Awards
The Compensation Committee determines the terms and conditions applicable
to the granting of restricted stock awards and stock bonus awards. The
Compensation Committee may make the grant, issuance, retention and/or vesting of
restricted stock awards and stock bonus awards contingent upon continued
employment with Keynote, the passage of time, or such performance criteria and
the level of achievement versus such criteria as it deems appropriate.
Eligibility Under Section 162(m)
Awards may, but need not, include performance criteria that satisfy
Section 162(m) of the Code. To the extent that awards are intended to qualify as
"performance-based compensation" under Section 162(m), the performance criteria
may include among other criteria, one of the following criteria, either
individually, alternatively or in any combination, applied to either our company
as a whole or to a business unit or subsidiary, either individually,
alternatively, or in any combination, and measured either annually or
cumulatively over a period of years, on an absolute basis or relative to a
pre-established target, to previous years' results or to a designated comparison
group, in each case as specified by the Compensation Committee in the award:
o Net revenue and/or net revenue growth
o Operating income and/or operating income growth
o Earnings per share and/or earnings per share growth
o Return on equity
o Adjusted operating cash flow return on income
o Individual business objectives
o Company-specific operational metrics
o Earnings before income taxes and amortization and/or earnings before
income taxes and amortization growth
o Net income and/or net income growth
o Total stockholder return and/or total stockholder return growth
o Operating cash flow return on income
11
o Economic value added
To the extent that an award under the EIP is designated as a "performance
award," but is not intended to qualify as performance-based compensation under
Section 162(m), the performance criteria can include the achievement of
strategic objectives as determined by the Board of Directors.
Notwithstanding satisfaction of any completion of any performance criteria
described above, to the extent specified at the time of grant of an award, the
number of shares of common stock, number of shares subject to stock options or
other benefits granted, issued, retainable and/or vested under an award on
account of satisfaction of performance criteria may be reduced by the
Compensation Committee on the basis of such further considerations as the
Compensation Committee in its sole discretion determines.
Transferability
Except as otherwise provided in the EIP, awards granted under the EIP may
not be sold, pledged, assigned, hypothecated, transferred or disposed of except
by will or the laws of descent and distribution. No award may be made subject to
execution, attachment or other similar process.
Administration
The Compensation Committee administers the EIP. Except for the automatic
grant of stock options to outside directors, the Compensation Committee selects
the persons who receive awards, determine the number of shares covered thereby,
and, subject to the terms and limitations expressly set forth in the EIP,
establish the terms, conditions and other provisions of the grants. The
Compensation Committee may construe and interpret the EIP and prescribe, amend
and rescind any rules and regulations relating to the EIP. The Compensation
Committee may delegate to a committee of one or more directors the ability to
grant awards to plan participants, so long as such participants are not
officers, members of our Board of Directors or any other person who is subject
to Section 16 of the Securities Exchange Act of 1934, as amended, and to take
certain other actions with respect to participants who are not executive
officers.
Amendments
The Board of Directors may at any time terminate or amend the EIP;
provided, however, that the Board of Directors may not, without the approval of
Keynote's stockholders, amend the EIP in a manner that requires stockholder
approval.
Adjustments
In the event of a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change of
Keynote's capital structure without consideration, then the number of shares
reserved for issuance under the EIP, the exercise prices of and the number of
shares subject to outstanding awards will be proportionately adjusted, subject
to any required action by Keynote's Board of Directors or Keynote's
stockholders.
U.S. Tax Consequences
The following is a general summary as of the date of this proxy statement
of the United States federal income tax consequences to Keynote and participants
in the EIP. The federal tax laws may change and the federal, state and local tax
consequences for any participant will depend upon his or her individual
circumstances. Each participant has been, and is, encouraged to seek the advice
of a qualified tax advisor regarding the tax consequences of participation in
the plan.
Non-Qualified Stock Options
A participant will realize no taxable income at the time a non-qualified
stock option is granted under the plan, but generally at the time such
non-qualified stock option is exercised, the participant will realize ordinary
income in an amount equal to the excess of the fair market value of the shares
on the date of exercise over the stock option exercise price. Upon a disposition
of such shares, the difference between the amount received and the fair market
value on the date of exercise will generally be treated as a long-term or
short-term capital gain or loss, depending on the holding period of the shares.
Keynote will generally be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the participant is
considered to have realized ordinary income in connection with the exercise of
the non-qualified stock option.
Incentive Stock Options
A participant will realize no taxable income, and Keynote will not be
entitled to any related deduction, at the time any incentive stock option is
granted. If certain employment and holding period conditions are satisfied, then
no taxable income will result upon the exercise of such option and Keynote will
not be entitled to any deduction in connection with the exercise of such stock
option. Upon disposition of the shares after expiration of the statutory holding
periods, any gain realized by a participant will be taxed as long-term capital
gain and any loss sustained will be long-term capital loss, and Keynote will not
be entitled to a deduction in respect to such disposition. While no ordinary
taxable income is recognized at exercise (unless there is a "disqualifying
disposition," see below), the excess of the fair market value of the shares over
the stock option exercise price is a preference item that is recognized for
alternative minimum tax purposes.
12
Except in the event of death, if shares acquired by a participant upon the
exercise of an incentive stock option are disposed of by such participant before
the expiration of the statutory holding periods (i.e., a "disqualifying
disposition"), such participant will be considered to have realized as
compensation taxed as ordinary income in the year of such disposition an amount,
not exceeding the gain realized on such disposition, equal to the difference
between the stock option price and the fair market value of such shares on the
date of exercise of such stock option. Generally, any gain realized on the
disposition in excess of the amount treated as compensation or any loss realized
on the disposition will constitute capital gain or loss, respectively. If a
participant makes a "disqualifying disposition," generally in the fiscal year of
such "disqualifying disposition" Keynote will be allowed a deduction for federal
income tax purposes in an amount equal to the compensation realized by such
participant.
Restricted Stock
A participant receiving restricted stock may be taxed in one of two ways:
the participant (i) pays tax when the restrictions lapse (i.e., they become
vested) or (ii) makes a special election to pay tax in the year the grant is
made (though the shares subject to the award are not yet vested). At either time
the value of the award for tax purposes is the excess of the fair market value
of the shares at that time over the amount (if any) paid for the shares. This
value is taxed as ordinary income and is subject to income tax withholding.
Keynote receives a tax deduction at the same time and for the same amount
taxable to the participant. If a participant elects to be taxed at grant, then,
when the restrictions lapse, there will be no further tax consequences
attributable to the awarded stock until the recipient disposes of the stock.
Section 162(m) Limit
The plan is intended to enable Keynote to provide certain forms of
performance-based compensation to executive officers that will meet the
requirements for tax deductibility under Section 162(m) of the Code. Section
162(m) provides that, subject to certain exceptions, Keynote may not deduct
compensation paid to any one of certain executive officers in excess of $1
million in any one year. Section 162(m) excludes certain performance-based
compensation from the $1 million limitation.
ERISA Information
The plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
The Board recommends a vote FOR approval of the amendments to the 1999
Equity Incentive Plan.
13
PROPOSAL NO. 3
RATIFICATION AND APPROVAL OF THE AMENDMENT AND
RESTATEMENT OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
We are asking our stockholders to approve the amendment and restatement of
our 1999 Employee Stock Purchase Plan, referred to as the "ESPP," to extend the
term of the ESPP for an additional ten years from the date that the Board
approved the amendment and restatement of the ESPP in January 2009. If our
stockholders do not approve of the amendment and restatement of the ESPP then
the ESPP will remain in effect until it expires by its terms on June 28, 2009.
The amended and restated ESPP you are being asked to approve will permit
us to use the remaining number of shares reserved but unissued under the ESPP,
450,610 shares as of December 31, 2008. Extending the term of the ESPP will
allow us to continue to make the benefits of the ESPP available to eligible
employees after its currently scheduled termination date, which the Board of
Directors and management believes is necessary to assist in the retention of
current employees and hiring of new employees, and to continue to provide our
employees with an incentive to contribute to our future success by providing an
opportunity to acquire shares of our common stock.
Below is a summary of the principal features of the ESPP, as proposed to
be amended and restated. The only material changes proposed to be made to the
ESPP are to increase its term by ten years. This summary, however, does not
purport to be a complete description of all of the provisions of the ESPP. It is
qualified in its entirety by references to the full text of the ESPP as proposed
to be amended and restated. A copy of the ESPP, as proposed to be amended and
restated, is attached as Annex B.
General
Our ESPP was approved by our Board of Directors on June 28, 1999 and
subsequently adopted by our stockholders. As originally adopted, the ESPP had
400,000 shares of common stock reserved for issuance.
Since the ESPP's inception, 972,502 shares have been issued and 450,610
shares are available for future grant.
Key Terms of the ESPP
The ESPP, including the right of participants to make purchases under the
ESPP, is intended to qualify as an "Employee Stock Purchase Plan" under the
provisions of Section 421 and 423 of the Internal Revenue Code (the "Code"). The
provisions of the ESPP shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of those
sections of the Code. The ESPP is not a qualified deferred compensation plan
under Section 401(a) of the Code, and is not subject to the provisions of ERISA.
The following description of the terms of the ESPP is qualified in its entirety
by the text of the ESPP which is attached to this proxy statement.
Purpose
The purpose of the ESPP is to provide our employees, including the
employees of any of our subsidiaries designated by the Board of Directors, with
a convenient means of acquiring an equity interest in Keynote through payroll
deductions, to enhance such employees' sense of participation in our affairs,
and to provide an incentive for continued employment.
Administration
The ESPP is administered by the Committee, and subject to applicable law,
the Committee may delegate authority under the plan to a committee to administer
certain provisions of the plan as the Committee deems appropriate. The
administration, interpretation or application of the ESPP by the Committee is
final and binding upon all participants.
Eligibility
Any employee, including an executive officer, who is employed by Keynote
ten days before the beginning of an offering period, is customarily employed for
at least twenty hours per week and more than five months in a calendar year by
us or any of our designated subsidiaries, and who does not provide services to
us or any of our designated subsidiaries as an independent contractor and has
not been reclassified as a common law employee for any reason other than for
federal income and employment tax purposes as of an offering date, is eligible
to participate in the ESPP. An offering date is the first business day of a
given offering period.
As of the record date, approximately 300 employees were eligible to
participate in the ESPP.
14
Special Limitations
The ESPP imposes certain limitations upon a participant's rights to
acquire our common stock, including the following limitations:
o Purchase rights may not be granted to any individual who owns or
together with another person would be considered to own stock,
including stock purchasable under any outstanding purchase rights,
possessing five percent or more of the total combined voting power or
value of all classes of our stock or of our affiliates.
o Purchase rights granted to a participant may not permit the individual
to accrue the right to purchase our common stock at an annual rate of
more than $25,000, valued at the time each purchase right is granted.
Furthermore, if, on a purchase date, the number of shares that would
otherwise be subject to stock options under the ESPP exceeds the number of
shares available for sale as of the beginning of the applicable offering period,
a pro-rata allocation of the available shares is made in as uniform and as
equitable a manner as is practicable. In its discretion, the Compensation
Committee can impose limits on the amount of shares participants may purchase
during any purchase period.
Enrollment in the Plan
Eligible employees become participants in the ESPP by completing a
subscription agreement authorizing payroll deductions prior to the applicable
offering date. A person who becomes employed fewer than ten days before the
commencement of an offering period may not participate in the ESPP until the
commencement of the next offering period.
Offering Periods; Purchase Periods
The ESPP is implemented by consecutive 24-month offering periods, with
a new offering period commencing on February 1 and August 1 of each year and
ending on January 31st and July 31st of each year. Each offering period consists
of four six-month purchase periods. The Committee has the power to alter the
duration of the offering periods, including the commencement dates, with respect
to future offerings without stockholder approval if such change is announced at
least fifteen days prior to the scheduled beginning of the first offering period
to be affected.
Purchase Price
The purchase price at which shares are sold under the ESPP is eighty-five
percent of the lesser of the fair market value of a share of our common stock on
(1) the first business day of the offering period, or (2) the last business day
of the purchase period. The ESPP provides that, because our common stock is
currently traded on The NASDAQ Global Market, the fair market value of a share
of our common stock on the first business day of the offering period or the last
business day of the purchase period shall be the closing price on The Nasdaq
Global Market.
Payment of the Purchase Price; Payroll Deductions
The payroll deductions accumulated during the offering period are applied
to the purchase of the shares on the purchase date. The deductions may not be
less than two percent or greater than ten percent of a participant's eligible
compensation (or such lower limit set by our Compensation Committee). Deductions
are made in one percent increments. The aggregate of such payroll deductions for
each calendar year cannot exceed $25,000. Eligible compensation means all W-2
cash compensation, including, but not limited to, base salary, wages,
commissions, overtime, shift premiums and bonuses, plus draws against
commissions, provided, however, that any election by a participant to reduce
regular cash compensation under Sections 125 or 401(k) of the Code shall be
treated as if the participant had not made such election.
Payroll deductions commence on the first pay date of the applicable
offering period and continue until the end of such offering period. No interest
accrues on the payroll deductions of a participant in the ESPP. At any time
during the offering period, a participant may increase or decrease his or her
payroll deductions; however, a participant may decrease his or her payroll
deductions only once during an outstanding offering period. A participant may
reduce his or her payroll deduction to zero during an offering period; provided,
however, that a participant may not resume making payroll deductions during an
offering period in which he or she reduced his or her payroll deductions to
zero.
All payroll deductions received or held by us under the ESPP may be
used by us for any corporate purpose, and we are not obligated to segregate such
payroll deductions. Until the shares are issued, participants only have the
rights of an unsecured creditor.
Purchase of Stock; Grant of Options
As of the first day of each offering period, each participant is granted
an option to purchase shares of our common stock, exercisable at the conclusion
of the purchase period. The exact number of shares is determined by dividing
such participant's accumulated payroll deductions during the offering period by
the option purchase price determined as described above, subject to the
limitations set forth in the ESPP (and described above).
15
Withdrawal
A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account under the ESPP at least fifteen days
prior to the end of the offering period by giving written notice to us. After
receipt of a notice of withdrawal, (1) all of the participant's payroll
deductions credited to his/her account will be returned without interest, (2)
the participant's option for the current period will automatically terminate,
and (3) no further payroll deductions for the purchase of shares will be made
during the offering period. A participant's withdrawal from an offering does not
have any effect upon such participant's eligibility to participate in subsequent
offerings under the ESPP.
Termination or Interruption of Employment
Upon termination of a participant's employment for any reason prior to the
last day of the offering period, the payroll deductions credited to the
participant's account will be returned to such participant, or, in the case of
the participant's death, to the person or persons entitled thereto as specified
in the participant's subscription agreement, and his or her option will
automatically terminate. A participant is not deemed to have terminated his or
her employment in the case of sick leave, military leave or any other leave of
absence approved by us; provided that such leave is for a period of not more
than ninety days or re-employment upon the expiration of such leave is
guaranteed by contract or statute.
Adjustments upon Changes in Capitalization or Merger
In the event a change is made in our capitalization, such as a stock split
or payment of a stock dividend, that results in an increase or decrease in the
number of outstanding shares of common stock without our receipt of additional
consideration, an appropriate adjustment will be made in the shares subject to
purchase and in the purchase price per share, subject to any required action by
our stockholders. In the event of our proposed dissolution or liquidation, the
offering period then in progress will be shortened and the new exercise date
will be set as immediately prior to the proposed dissolution or liquidation. In
the event of our merger with or into another corporation or the sale of
substantially all of our assets, then the ESPP will continue with regard to any
offering period that commenced prior to the closing of the proposed transaction
and shares will be purchased based on the fair market value of the surviving
corporation's stock on each purchase date, unless the Committee determines the
final purchase date under all then ongoing offering periods shall be accelerated
to an earlier date.
Nonassignability
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
ESPP may be assigned, transferred, pledged, or otherwise disposed of in any way
by the participant, other than by will, the laws of descent and distribution, or
as provided in the ESPP. Any such attempt at assignment, transfer, pledge, or
other disposition shall be without effect, except that we may treat such act as
an election to withdraw from the ESPP.
Amendment and Termination of the Plan
The Board of Directors may, at any time or from time to time, amend or
terminate the ESPP, except that such termination shall not affect options
previously granted nor, generally, may any amendment make any change in an
option previously granted that adversely affects the rights of any participant.
To the extent necessary to comply with Section 423 of the Code, we shall obtain
stockholder approval in such a manner and to such a degree as required.
If the extension of the ESPP's term is approved, the ESPP will continue
until the earlier of termination by our Board of Directors, issuance of all of
the shares reserved for issuance under the ESPP or June 28, 2019.
U.S. Tax Consequences
The following is a general summary as of the date of this Proxy Statement
of the United States federal income tax consequences to Keynote and participants
in the ESPP. The federal tax laws may change and the federal, state and local
tax consequences for any participant will depend upon his or her individual
circumstances.
The ESPP and the right of participants to make purchases under the ESPP
are intended to qualify under the provisions of Sections 421 and 423 of the
Code. Under these provisions, no income will be taxable to a participant at the
time of grant of the option or the purchase of shares. A participant may become
liable for tax upon disposition of the shares acquired, as follows.
If the shares are sold or disposed of, including by way of gift, at least
two years after the offering date (the first day of the offering period during
which shares were purchased) and more than one year after the date on which
shares were transferred to the employee, then the lesser of (a) the excess of
the fair market value of the shares at the time of such disposition over the
purchase price of the shares subject to the option, referred to as the "option
price," or (b) fifteen percent of the fair market value of the shares on the
offering date, will be treated as ordinary income to the participant. The
employee's basis of the option stock will be increased by the amount of the
compensation income recognized. Any further gain or loss upon such disposition
will be treated as long-term capital gain or loss. If the shares are sold and
the sales price is less than the option price, there is no ordinary income and
the participant has a capital loss for the difference.
16
If the shares are sold or disposed of, including by way of gift or by
exchange in connection with the exercise of an incentive stock option, before
the expiration of the holding periods described above, then the excess of the
fair market value of the shares on the date of option exercise over the option
price will be treated as ordinary income to the participant. This excess will
constitute ordinary income in the year of sale or other disposition even if no
gain is realized on the sale or a gratuitous transfer of the shares is made. The
basis of the option stock will be increased by the amount of the compensation
income recognized. Any further gain or loss recognized in connection with any
such sale or exchange will be treated as capital gain or loss and will be
treated as short-term capital gain or loss if the shares have been held less
than one year.
If shares are sold or disposed of before the expiration of the statutory
holding periods, we are generally entitled to a tax deduction in an amount equal
to the ordinary income recognized by the participant in connection with such
sale or disposition.
The foregoing summary of the effect of federal income taxation upon the
participant and us with respect to the shares purchased under the ESPP does not
purport to be complete. Reference should be made to the applicable provisions of
the Internal Revenue Code. In addition, the summary does not discuss the tax
implications of a participant's death or the provisions of the income tax laws
of any municipality, state, or foreign country in which the participant may
reside.
New Plan Benefits
Eligible employees participate in the ESPP voluntarily and each such
employee determines his or her level of payroll deductions within the guidelines
fixed by the ESPP. Accordingly, future purchases under the ESPP are not
determinable at this time. Non-executive directors are not eligible to
participate in the ESPP. We, therefore, have not included any new plan benefits
table.
The Board Recommends a Vote "FOR" the Ratification and Approval of the
Amendment and Restatement of the 1999 Employee Stock Purchase Plan.
17
PROPOSAL NO. 4
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board of Directors has selected Deloitte &
Touche LLP ("Deloitte") as the independent registered public accounting firm for
the fiscal year ending September 30, 2009, and our stockholders are being asked
to ratify such selection. Representatives of Deloitte will be present at the
Annual Meeting, will be able to make a statement if they wish to do so, and will
be able to respond to appropriate questions.
Ratification by our stockholders of the selection of Deloitte as our
independent registered public accounting firm is not required by our bylaws or
otherwise. However, the Board is submitting the selection of Deloitte as a
matter of good corporate practice. If our stockholders fail to ratify this
selection, the Audit Committee will reconsider whether or not to retain that
firm. Even if the selection is ratified, the Audit Committee in its discretion
may direct the appointment of a different independent registered public
accounting firm at any time during the year if it determines that such a change
would be in the best interests of Keynote and our stockholders.
The Board Recommends a Vote FOR the Ratification of the Selection of
Deloitte & Touche LLP
Audit and Related Fees
During the fiscal years ended September 30, 2008 and 2007, the aggregate
fees billed by Keynote's independent registered public accounting firm,
Deloitte, for professional services were as follows:
o Audit Fees. The aggregate fees billed by Deloitte for professional
services rendered for the audit of Keynote's annual consolidated
financial statements, and review of the consolidated financial
statements included in Keynote's quarterly reports on Form 10-Q and
services that are normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were
$1,430,140 for the fiscal year ended September 30, 2008 and
$1,201,984 for the fiscal year ended September 30, 2007 .
o Audit-Related Fees. There were no fees billed by Deloitte for
assurance and related services reasonably related to the performance
of the audit or review of Keynote's consolidated financial
statements that are not reported above under "Audit Fees" for the
fiscal years ended September 30, 2008 or September 30, 2007;
o Tax Fees. There were no fees billed by Deloitte and for professional
services rendered for tax compliance and tax advice planning for the
fiscal years ended September 30, 2008 or for the fiscal year ended
September 30, 2007; and
o All Other Fees. For the fiscal years ended September 30, 2008
and September 30, 2007, there were no other fees billed by
Deloitte.
The Audit Committee determined that the provision of these services was
compatible with maintaining Deloitte's independence for the fiscal year ended
September 30, 2008.
18
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has reviewed Keynote's audited consolidated financial
statements for the fiscal year ended September 30, 2008 and has met with the
management of Keynote and its independent auditors to discuss the audited
consolidated financial statements. Keynote's management has represented to the
Audit Committee that Keynote's audited consolidated financial statements were
prepared in accordance with generally accepted accounting principles.
The Audit Committee has discussed with Keynote's independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61, as
amended (AICPA, Professional Standards, Vol. 1, AU section 380), and as adopted
by the Public Company Accounting Oversight Board in Rule 3200T. The audit
committee has received from Keynote's independent auditors the written
disclosures and letter required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and has discussed with them
their independence. The Audit Committee has also considered whether the
provision of non-audit services by Keynote's independent auditors is compatible
with maintaining the independence of the independent auditors.
Based on the review and discussions noted above, the Audit Committee
recommended to Keynote's Board of Directors that the audited consolidated
financial statements be included in Keynote's annual report on Form 10-K for the
fiscal year ended September 30, 2008, and be filed with the Securities and
Exchange Commission.
Audit Committee
Mohan Gyani
Raymond L. Ocampo Jr.
Charles M. Boesenberg
19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as to the beneficial ownership of
our common stock as of December 31, 2008 by:
o each stockholder known by us to be the beneficial owner of more than
5% of our common stock;
o each of our directors;
o our Chief Executive Officer, Chief Financial Officer and three other
most highly compensated executive officers who were serving as
executive officers as of September 30, 2008; and
o all of our directors and executive officers as a group.
The percentage ownership is based on 14,195,181 shares of common stock
outstanding, excluding shares of treasury stock, as of December 31, 2008. Shares
of common stock that are subject to options currently exercisable or exercisable
within 60 days of December 31, 2008, are deemed outstanding for the purposes of
computing the percentage ownership of the person holding these options but are
not deemed outstanding for computing the percentage ownership of any other
person. Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless indicated below, to our knowledge, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Unless otherwise noted, the address for each stockholder
listed below is c/o Keynote Systems, Inc., 777 Mariners Island Boulevard, San
Mateo, CA 94404.
Shares Beneficially
Name of Beneficial Owner Owned
------------------------ -----
Number of
Shares Percent
------ -------
Directors and Named Executive Officers:
Umang Gupta (1)...................................................................................... 3,195,443 22.51%
Eric Stokesberry (2)................................................................................. 229,615 1.62%
Krishna Khadloya (3)................................................................................. 195,346 1.38%
Raymond L. Ocampo Jr.(4)............................................................................. 179,444 1.26%
David Cowan (5)...................................................................................... 176,971 1.25%
Mohan Gyani (6)...................................................................................... 153,750 1.08%
Deborah Rieman (7) .................................................................................. 133,750 *
Jeffrey Kraatz (8)................................................................................... 111,353 *
Andrew Hamer (9)..................................................................................... 108,397 *
Jennifer Bolt (10)................................................................................... 101,000 *
Charles M. Boesenberg (11)........................................................................... 46,250 *
All 16 directors and executive officers as a group (12).............................................. 5,160,601 36.35%
5% Stockholders:
Dimensional Fund Advisors, LP (13)................................................................... 1,387,724 9.78%
Renaissance Technologies LLC (14).................................................................... 1,092,800 7.70%
S Squared Technology (15)............................................................................ 958,300 6.75%
Barclays Global Investors NA (CA) (16) ............................................................. 804,264 5.67%
Funds affiliated with Ramius LLC (17) .............................................................. 785,206 5.53%
- --------
* Indicates beneficial ownership of less than 1%.
20
(1) Includes 1,283,333 shares subject to options exercisable within 60 days of
December 31, 2008.
(2) Includes 194,666 shares subject to options exercisable within 60 days of
December 31, 2008.
(3) Includes 189,166 shares subject to options exercisable within 60 days of
December 31, 2008.
(4) Includes 34,716 shares held by Raymond L. Ocampo Jr. and Sandra O. Ocampo,
Trustees of Ocampo Revocable Trust UTA May 30, 1996, and 122,000 shares
subject to options exercisable within 60 days of December 31, 2008.
(5) Includes 148,750 shares subject to options exercisable within 60 days of
December 31, 2008.
(6) Represents 153,750 shares subject to options exercisable within 60 days of
December 31, 2008.
(7) Represents 133,750 shares subject to options exercisable within 60 days of
December 31, 2008.
(8) Represents 109,790 shares subject to options exercisable within 60 days of
December 31, 2008.
(9) Represents 107,102 shares subject to options exercisable within 60 days of
December 31, 2008.
(10) Represents 101,000 shares subject to options exercisable within 60 days of
December 31, 2008.
(11) Represents 46,250 shares subject to options exercisable within 60 days of
December 31, 2008.
(12) Includes 3,097,348 shares subject to options exercisable within 60 days of
December 31, 2008.
(13) Based solely on information provided by Dimensional Fund Advisors, LP in
its Form 13F, as amended, filed with the Securities and Exchange Commission
on September 30, 2008 and Schedule 13G/A, filed with the Securities and
Exchange Commission on June 6, 2008. Dimensional Fund Advisors LP
("Dimensional"), and serves as investment manager to certain other
commingled group trusts and separate accounts. These investment companies,
trusts and accounts are the "Funds." In its role as investment advisor or
manager, Dimensional possesses voting and/or investment power over the
common stock, and may be deemed to be the beneficial owner of the shares
held by the Funds. However, all securities are owned by the Funds.
Dimensional disclaims beneficial ownership of such securities. The address
of Dimensional is 1299 Ocean Avenue, Santa Monica, CA 90401.
(14) Based solely on information provided by Renaissance Technologies, LLC. in
its Form 13F, as amended, filed with the Securities and Exchange Commission
on September 30, 2008 and Schedule 13G filed with the Securities and
Exchange Commission on February 13, 2008. James Simons is a controlling
person of such fund. The address of this person and this entity is 800
Third Avenue, 33rd Floor, New York, NY 10022.
(15) Based solely on information provided by S Squared Technology in its Form
13F, filed with the Securities and Exchange Commission on September 30,
2008 and Schedule 13G, as amended filed with the Securities and Exchange
Commission on January 17, 2008.. Represents combined holdings of S Squared
Technology, LLC and S Squared Technology Partners, L.P. Seymour L.
Goldblatt disclaims any beneficial ownership interest of the shares held by
any funds for which S Squared Technology, LLC or S Squared Technology
Partners, L.P. acts as an investment adviser, except for that portion of
such shares that relates to his economic interest in such shares, if any
Represents combined holdings of S Squared Technology, LLC and S Squared
Technology Partners, L.P. Kenneth A. Goldblatt disclaims any beneficial
ownership interest of the shares held by any funds for which S Squared
Technology, LLC or S Squared Technology Partners, L.P. acts as an
investment adviser, except for that portion of such shares that relates to
his economic interest in such shares, if any. This statement is filed on
behalf of S Squared Technology, LLC ("SST"), a Delaware limited liability
companies, S Squared Technology Partners, L.P. ("SSTP"), a Delaware limited
partnership, and Seymour L. Goldblatt ("Seymour") and Kenneth A. Goldblatt
("Kenneth"). Seymour is the President of each of SST and SSTP and owns a
majority of the interests in SST. Kenneth owns a majority of the interests
in SSTP. The share amounts relate to shares held for the accounts of
multiple private investment funds for which SST or SSTP acts as investment
adviser. The address of these entities and persons is 515 Madison Avenue,
New York, NY 10022.
(16) Based solely on information provided by Barclays Global Investors NA (CA)
in its Form 13F, filed with the Securities and Exchange Commission on
September 30, 2008. The address of this entity is 400 Howard St, San
Francisco, CA94105.
(17) Based solely on information provided by Ramius LLC in its Schedule 13D,
filed with the Securities and Exchange Commission on November 7, 2008.
According to the Schedule 13D, 708,238 shares are held by Ramius Value and
Opportunity Master Fund LTD ("Value and Opportunity Master Fund"), 76,968
shares are held by Parche LLC "Parche") Ramius Enterprise Master Fund Ltd,
a Cayman Islands exempted company ("Enterprise Master Fund"), who serves as
the sole non-managing member of Parche and owns all economic interests
therein. Ramius Advisors, LLC, a Delaware limited liability company
("Ramius Advisors"), who serves as the investment advisor of Enterprise
Master Fund; RCG Starboard Advisors, LLC, a Delaware limited liability
company ("RCG Starboard Advisors"), who serves as the investment manager of
Value and Opportunity Master Fund and the managing member of Parche; Ramius
LLC, a Delaware limited liability company ("Ramius"), who serves as the
sole member of each of RCG Starboard Advisors and Ramius Advisors; C4S &
Co., L.L.C., a Delaware limited liability company ("C4S"), who serves as
managing member of Ramius. The managing members of C4S & Co., L.L.C. are
Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss and Jeffrey M. Solomon.
The address of these entities and persons is 599 Lexington Avenue, 20th
Floor, New York, NY 10022.
21
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This compensation discussion and analysis describes the material elements
of compensation awarded to each of our executive officers who are identified in
the Summary Compensation Table on page 27 (the "named executive officers"). This
discussion and analysis serves as an introduction to the executive compensation
information provided in narratives, tables and footnotes that follow. This
discussion and analysis contains statements about individual and company
performance targets and goals, and the likelihood of achieving these targets and
goals, in the limited context of our compensation programs. Those statements
should not be understood to be statements of our expectations or estimates of
future performance or other guidance, and should not be applied to other
contexts. These statements are subject to many risks and uncertainties,
including, but not limited to, those identified in our Form 10-K for fiscal year
ended September 30, 2008 under "Item 1A. Risk Factors."
Our compensation committee performs at least annually a strategic review of
our executive officers' overall compensation to determine whether they provide
adequate incentives and motivation to our executive officers. During each fiscal
year, the Compensation Committee meets with our Chief Executive Officer to
review the objectives of Keynote and its executives for such year and to
establish parameters for performance-based year-end bonus awards. Bonus awards
for executives other than the Chief Executive Officer may be based on
achievement of corporate objectives as well as on achievement of personal
objectives as determined by the Chief Executive Officer. Personal objectives are
established by the Chief Executive Officer at the beginning of the fiscal year
and usually involve a mix of quantitative and qualitative goals. At the
conclusion of each fiscal year, the Compensation Committee meets with the Chief
Executive Officer to review the performance of Keynote and its executive
officers against the corporate performance objectives and parameters that were
established for eligibility for performance-based bonuses and to award year-end
cash bonuses. The Compensation Committee determines the compensation of the
Chief Executive Officer outside of his presence.
General Compensation Policy and Objectives
Our executive compensation program is designed to attract, as needed,
individuals with the skills necessary for us to achieve our business plan, to
reward those individuals fairly over time, to retain those individuals who
continue to perform at or above the levels that we expect and to closely align
the compensation of those individuals with the performance of our company on
both a short-term and long-term basis. Keynote's compensation philosophy for
executive officers is to relate compensation to individual and corporate
performance. Accordingly, our compensation programs are designed with a
framework of rewards, in the short term and the long term, for meeting and
exceeding measurable company-wide goals and individual goals. Within this
overall philosophy, the elements of compensation for our named executive
officers include base salaries, cash incentive bonuses, and equity incentive
awards.
We view these components of compensation as related but distinct. Although
our compensation committee does review total compensation, we do not believe
that significant compensation derived from one component of compensation should
negate or reduce compensation from other components. We determine the
appropriate level for each compensation component based in part, but not
exclusively, on our understanding of the competitive market, our view of
internal equity and consistency, individual performance and overall company
performance. We typically have not engaged third party compensation consultants,
except in the case of our compensation decisions regarding our Chief Executive
Officer compensation for fiscal 2008, when the Compensation Committee engaged
Compensia, Inc. Our compensation committee has not adopted any formal or
informal policies or guidelines for allocating compensation between long-term
and currently paid out compensation, between cash and non-cash compensation or
among different forms of non-cash compensation. However, the compensation
committee's philosophy is to have a significant portion of an employee's
compensation performance-based, while providing the opportunity to be well
rewarded through equity if the company performs well over time. We also believe
for technology companies, stock-based compensation is the primary motivator in
attracting employees, rather than cash compensation.
From time to time, special business conditions may warrant additional
compensation to attract, retain or motivate executives. Examples of such
conditions could include acquisitions, recruiting or retaining specific or
unique talent, and recognition for exceptional contributions. In these
situations, the Compensation Committee considers the business needs and the
potential costs and benefits of special rewards.
We account for equity compensation paid to our employees under SFAS 123(R),
which requires us to estimate and record an expense over the service period of
the award. Our cash compensation is recorded as an expense at the time the
obligation is accrued. We currently intend that all cash compensation paid will
be tax deductible for us. However, with respect to equity compensation awards,
while any gain recognized by employees from nonqualified options granted at fair
market value should be deductible, to the extent that an option constitutes an
incentive stock option gain recognized by the optionee will not be deductible if
there is no disqualifying disposition by the optionee. In addition, if we grant
restricted stock or restricted stock unit awards that are not subject to
performance vesting, they may not be fully deductible by us at the time the
award is otherwise taxable to employees.
Elements of Compensation
The three material elements of our named executive officer compensation
program are base salary, cash incentive awards and equity incentive awards.
22
Base Salary
We seek to provide our senior management with a base salary that is
appropriate for their roles and responsibilities, and that provides them with a
level of income stability. The Compensation Committee reviews base salaries
annually, and adjusts them from time in light of current conditions. For fiscal
year ended September 30, 2008, the base salaries of our named executive officers
were determined for each individual by evaluating his scope of responsibility,
historical qualitative performance and other contributions, prior experience and
salary history. The Compensation Committee made its compensation decisions based
on its subjective judgment taking into account the available information, and in
setting salaries for fiscal year ended September 30, 2008, the Compensation
Committee considered base salary increases for all of our named executive
officers. The Compensation Committee believed the salary levels for fiscal year
ended September 30, 2008 would serve as an effective means of retaining these
individuals.
For the fiscal year ended September 30, 2008, the Compensation Committee
set Mr. Gupta's base salary at the $330,000 level. The Compensation Committee
considered our company's performance in fiscal year ended September 30, 2008,
Mr. Gupta's overall and cash compensation history at our company, and the
Compensation Committee's understanding of cash compensation paid to chief
executive officers of other public and private companies. The base salaries of
our other named executive officers other than Mr. Kraatz remained largely the
same, with Mr. Hamer's at $206,000, and each of Messrs. Stokesberry's and
Khadloya's at approximately $190,000. In July 2008, Messrs. Hamer, Khadloya and
Stokesberry received cost of living adjustments to their base salaries, bringing
their base salaries to $209,000, $202,000 and $197,000, respectively. The base
salary of Mr. Kraatz was increased to $250,000 from $175,000 and determined that
such increase was warranted based on his increased responsibilities as the head
of our sales organization, while still closely aligning his variable
compensation with the overall corporate goal of increasing sales.
Cash Incentive Awards
Each of our named executive officers is eligible to receive incentive cash
compensation based on individual performance and our corporate performance for
the entire year. The Compensation Committee met with our Chief Executive Officer
to review the objectives of Keynote and its executives for the fiscal year ended
September 30, 2008 and to establish parameters for performance-based year-end
bonus awards.
Our Chief Executive Officer's bonus was based entirely on achieving
corporate goals, while the named executive officers bonus was tied to achieving
Personal management by objectives (MBOs) and Corporate MBOs that are established
by the Chief Executive Officer at the beginning of the fiscal year. Corporate
MBOs include quantitative goals, while Personal MBOs involve a mix of
quantitative and qualitative goals.
For fiscal year ended September 30, 2008, the on-target bonus for our Chief
Executive Officer was 60% of his base salary. The on-target bonuses for each
named executive officer other than the Chief Executive Officer and Mr. Kraatz,
was 30% of base salary and the on-target bonus for Mr. Kraatz was 60% of base
salary, with much of his bonus directly related to the amount of services sold
because of his responsibility for the sales function at our company.
The on-target bonus amounts for each of the named executive officers for
fiscal year ended September 30, 2008 were as follows:
--------------------------- ------------------------------------------------------------------------------------
Name On-Target Bonus Minimum Bonus Maximum Bonus
--------------------------- -------------------------- ------------------------- -------------------------------
Umang Gupta $198,000 $0 $396,000(1)
Drew Hamer(2) 62,000 0 100,000
Jeffrey Kraatz 131,000 0 (3)
Krishna Khadloya 56,000 0 78,000
Eric Stokesberry 58,000 0 78,000
- ---
(1) If the corporate objectives described below for Mr. Gupta were exceeded,
Mr. Gupta could have received up to 200% of his target bonus.
(2) If the corporate objectives described below for Mr. Hamer were exceeded,
Mr. Hamer could have received up to and an additional 20% of his base
salary as a bonus.
(3) There was no cap on the maximum bonus amount to be paid to Mr. Kraatz.
Personal MBOs.
Each named executive officer, other than our Chief Executive Officer,
typically has a number of Personal MBO goals for the fiscal year. The specific
Personal MBO goals, and the relative weighting of each, is determined by our
Chief Executive Officer and confirmed by the Compensation Committee. Bonus
payments associated with Personal MBO goal achievement are based on the degree
to which each the objective is achieved, as determined by our Chief Executive
Officer.
For the fiscal year ended September 30, 2008, the Personal MBO goals for
our Chief Financial Officer, Mr. Hamer were established and reviewed quarterly,
focusing on the management of his area of responsibility. For the fiscal 2008,
Mr. Hamer's Personal MBO goals were maintaining budgetary controls on general
and administrative costs, and delivering monthly financial packages. For the
fiscal year ended September 30, 2008, Mr. Hamer earned bonus payments of
approximately $10,000 in the aggregate as a result of achievement of 66.6% of
the goals for the first quarter and third quarters, 0% of the goals in the
second quarter and 100% achievement of the goals for the fourth quarter.
For the fiscal year ended September 30, 2008, the Personal MBO goals for
our Vice-President of Worldwide Sales and Services, Mr. Kraatz, were based on
Keynote revenue in North America and Asia Pacific. If we have revenue in excess
of a base amount in a quarter, Mr. Kraatz was eligible to receive a target
commission for that quarter based on a percentage of the excess of this base
amount. For the fiscal year ended September 30, 2008, Mr. Kraatz earned cash
payments of $33,726, in the aggregate as a result of our revenue performance.
The Personal MBO objectives for Mr. Khadloya and Mr. Stokesberry related to
product and operational goals set by our Chief Executive Officer. Approximately
two-thirds of each of his target bonus amount was tied to these Personal MBO
goals. The actual amount of bonus paid to Mr. Khadloya and Mr. Stokesberry for
the fiscal year ended September 30, 2008 was based on the overall subjective
determination of our Chief Executive Officer of each of his overall performance
and their achievement of these goals for the fiscal year.
23
Corporate MBOs. For fiscal year ended September 30, 2008, the Compensation
Committee selected EBITDA goals and revenue goals for the corporate goals
because it believed that these measures are strongly correlated with stockholder
value creation, improvement in these measures aligns with our overall growth
strategy, we and our investors see these measures as among the most critical of
our financial information, and these measures balance growth and profitability.
The Compensation Committee also selected these measures to establish appropriate
checks and balances among our financial objectives and to provide the strongest
composite of indicators of our overall annual performance. The EBITDA goals and
the revenue goals were set at levels intended to reward achieving results that
met our expectations. The Corporate MBOs were a higher component of the bonus
for our Chief Executive Officer and the Chief Financial Officer, as it was
believed that they had the most company-wide perspective in their roles, whereas
the other named executive officers had a narrower, more domain-focused
responsibility.
The Compensation Committee believes that to provide for an appropriate
incentive effect, our Chief Executive Officer and our Chief Financial Officer
should only be rewarded for achievement of at least a minimum threshold of a
particular Corporate MBO goal, with the opportunity to receive more as the
performance levels increase. With respect to EBITDA, 50% of the Corporate MBO
for fiscal 2008 service was payable if Keynote achieved EBITDA of $8.3 million.
A linear payout of 0% to 200% (of such 50% of the Corporate MBO) was payable
upon achievement of such EBITDA, within a range extending from approximately 80%
of the operating cash flow goal (0% payout) to approximately 120% of the
operating cash flow goal (200% payout). With respect to revenue, 50% of the
Corporate MBO was payable if Keynote achieved the revenue goal of $77.0 million,
as calculated under generally accepted accounting principles of the United
States or Germany, depending on the jurisdiction in which the revenue was
generated. A linear payout of 0% to 200% (of such 50% of the Corporate MBO) was
payable upon achievement of such revenue goal, within a range extending from
approximately 90% of the revenue goal (0% payout) to 110% of the revenue goal
(200% payout). Accordingly, our Chief Executive Officer and Chief Financial
Officer would not have received a payment for the portion of the 2008 target
bonus that was based on a company performance goal if the minimum achievement
threshold level of a particular goal was not met. Conversely, if the achievement
threshold of a particular goal was exceeded, our Chief Executive Officer and
Chief Financial Officer would have received a payment amount that exceeded his
respective target bonus associated with that goal, with a maximum bonus of 200%
of the target amount for such Corporate MBO. In addition, each of Mr. Khadloya
and Stokesberry had approximately one third of his target bonus tied to the
achievement of these corporate goals.
For the fiscal year ended September 30, 2008, Messrs. Gupta and Hamer
earned cash payments of $225,024, and $46,823, respectively, as a result of
achievement of goals related to company performance, representing 129% of the
target bonus that was based on the EBITDA goal and 99% of the target bonus that
was based on the revenue goal.
Because our Compensation Committee views cash bonuses as a reward for
strong performance, we generally set company performance objectives at levels
that would only be achieved if we improved on our past levels of performance.
Accordingly, we generally believe that these targets are difficult to achieve
and require a high level of execution and performance by our executives.
We do not have a formal policy regarding adjustment or recovery of awards
or payments if the relevant performance measures upon which they are based are
restated or otherwise adjusted in a manner that would reduce the size of the
award.
Long-Term Equity Awards
Each named executive officer is eligible to receive equity awards, which
the Compensation Committee believes will reward the named executive officers if
stockholder value is created over the long-term, as the value of the equity
awarded increases with the appreciation of the market value of our common stock.
Accordingly, the primary purpose of our long-term equity awards is to align the
interests of the named executive officers with those of the stockholders through
incentives to create stockholder value. Equity awards also improve our ability
to attract and retain our executives by providing compensation that is
competitive with market levels.
Our equity compensation plan provides for awards of: stock options,
restricted stock, and stock bonuses, although to date we have only issued stock
options. We use stock options to link executive officer compensation directly to
increases in the price of our common stock, which reflects increases in
stockholder value. Stock options therefore compensate our executive officers
only if our stock price increases after the date of grant and the executive
officer remains employed for the period required for the stock option to vest
and become exercisable. The Compensation Committee thus considers stock options
a particularly effective incentive and retention tool because it motivates our
executive officers to increase stockholder value and remain with our company.
Stock option grants are typically awarded to executive officers upon hiring
or promotion, in connection with a significant change in responsibilities, or
sometimes to achieve additional ownership in our company. All stock options
granted to executive officers are granted with an exercise price equal to the
market closing price of our common stock on the date of grant. Each year, the
Compensation Committee reviews the equity ownership of our executive officers
and considers whether to make an additional award and takes into account our
company-wide stock option refresh policy. In order to qualify for an additional
option grant, the employee must have a strong performance evaluation rating. In
making determinations as to additional grants of options to executive officers,
the Compensation Committee remains sensitive to the potential dilutive impact
and accounting expense of stock option grants, and also takes into account, on a
subjective basis and on the advice of the chief executive officer, in the case
of other named executive officers, the responsibilities, past performance and
anticipated future contribution of the executive, the competitiveness of the
executive's overall compensation package, as well as the executive's existing
equity holdings, accumulated realized and unrealized stock option gains, and the
potential reward to the executive if the market value of our common stock
appreciates.
24
The following table summaries the stock options granted to named executive
offers during fiscal year ended September 30, 2008:
----------------------- ---------------------------------------------------------------------------
Name Shares of Stock Options Granted
----------------------- ---------------------------------------------------------------------------
Umang Gupta 400,000
----------------------- ---------------------------------------------------------------------------
Andrew Hamer 6,250
----------------------- ---------------------------------------------------------------------------
Jeffrey Kraatz 20,000
----------------------- ---------------------------------------------------------------------------
Krishna Khadloya 20,000
----------------------- ---------------------------------------------------------------------------
Eric Stokesberry 12,500
----------------------- ---------------------------------------------------------------------------
We also have an employee stock purchase plan that enables eligible
employees to periodically purchase shares of our common stock at a discount.
Participation in this plan is available to all executive officers on the same
basis as our other employees.
We do not have any program, plan or obligation that requires us to grant
equity compensation on specific dates and we have not made equity grants in
connection with the release or withholding of material non-public information.
Other than the equity plans described above, we do not have any equity
security ownership guidelines or requirements for our executive officers.
Employee Benefits.
All of our named executive officers are eligible to participate in our
401(k) plan (which includes our matching contributions), health and dental
coverage, life insurance, disability insurance, paid time off, and paid holidays
on the same terms as are available to all employees generally.
Severance Arrangements.
We entered into an employment agreement with Umang Gupta, our Chief
Executive Officer, in December 1997 and amended this agreement in November 2001.
This agreement, as amended, establishes Mr. Gupta's annual base salary and
eligibility for benefits and bonuses. This agreement continues until it is
terminated upon written notice by Mr. Gupta or us. We must pay Mr. Gupta his
salary and other benefits through the date of any termination of his employment.
If his employment is terminated by us without cause or through his constructive
termination due to a material reduction in his salary or benefits, a material
change in his responsibilities or a sale of us if he is not the chief executive
officer of the resulting combined company, we must also pay his salary for six
additional months after that date.
Pursuant to a promotion letters with each of Messrs. Hamer, Stokesberry and
Khadloya, if we terminate his employment with or without cause, we must provide
him with either three months notice or must pay him three months of his base
salary. Pursuant to a promotion letter dated April 4, 2006 with Jeffrey Kraatz,
our Senior Vice President, Worldwide Sales and Services, if we terminate Mr.
Kraatz's employment with or without cause, we must provide Mr. Kraatz with
either three months notice or must pay Mr. Kraatz three months of his base
salary plus his average incentive compensation as averaged over the previous
year.
Change in Control Arrangements.
Under Mr. Gupta's employment agreement, as amended, all shares subject to
Mr. Gupta's options, and any options granted in the future, would vest in full
90 days following a sale of us if Mr. Gupta is not the chief executive officer
of the resulting combined company. If his employment is terminated by us without
cause or through his voluntary termination, and if he assists in the transition
to a successor chief executive officer, vesting of the shares subject to his
options would continue for an additional 12 months. If his employment is
terminated by us without cause or due to his death or through his constructive
termination due to a material reduction in his salary or benefits or a material
change in his responsibilities, the shares subject to his options would vest in
an amount equal to the number that would vest during the six months following
this termination. If his employment is terminated by us for cause or due to his
disability or through his voluntary termination where he does not assist in the
transition to a successor chief executive officer, the vesting of any shares
subject to his options would cease on the date of termination.
25
The options that we grant to our executive officers other than our chief
executive officer, as described above, under our 1999 Equity Incentive Plan
generally provide for acceleration of the vesting of such options upon the
occurrence of specified events. If the executive officer is terminated without
cause following a sale of our company that occurs within 12 or less months after
the date of grant of the option, that option vests immediately with respect to
25% of the shares subject to that option. If the executive officer is terminated
without cause following a sale of our company that occurs more than 12 months
after the date of grant of the option, that option vests immediately with
respect to all of the shares subject to that option. All shares subject to
options held by Messrs. Hamer, Kraatz, Khadloya and Stokesberry , and any
options granted in the future to these executive officers, would accelerate
under these circumstances. With respect to these options, a sale of our company
includes any sale of all or substantially all of our assets, or any merger or
consolidation of us with or into any other corporation, corporations, or other
entity in which more than 50% of our voting power is transferred. Cause is
defined to mean (i) willfully engaging in gross misconduct that is materially
and demonstrably injurious to us; (ii) willful and continued failure to
substantially perform the executive officer's duties (other than incapacity due
to physical or mental illness), provided that this failure continues after our
board of directors has provided the executive officer with a written demand for
substantial performance, setting forth in detail the specific respects in which
it believes the executive officer has willfully and not substantially performed
his or her duties and a reasonable opportunity (to be not less than 30 days) to
cure the failure. A termination without cause includes a termination of
employment by the executive officer within 30 days following any one of the
following events: (x) a 10% or more reduction in the executive officer's salary
that is not part of a general salary reduction plan applicable to all officers
of the successor company; (y) a change in the executive officer's position or
status to a position that is not at the level of vice president or above with
the successor (or, with respect to Mr. Hamer, at the level of Chief Financial
Officer or above); or (z) relocating the executive officer's principal place of
business, in excess of fifty (50) miles from the current location of such
principal place of business.
The intent of these arrangements is to enable the named executive officers
to have a balanced perspective in making overall business decisions, and to be
competitive with market practices. The Compensation Committee believes that
change in control benefits, if structured appropriately, serve to minimize the
distraction caused by a potential transaction and reduce the risk that key
talent would leave our company before a transaction closes. We do not provide
for gross-ups of excise tax values under Section 4999 of the Internal Revenue
Code. Rather, we allow the named executive officer to reduce the benefit
received or defer the accelerated vesting of options to avoid excess payment
penalties.
The following table summarizes the value of benefits payable to each named
executive officer pursuant to the arrangements described above:
Termination Termination following
----------- ---------------------
a Change of Control
-------------------
Acceleration of Acceleration of
Name Severance Equity Vesting Severance Equity Vesting(1)
- ---- -------------- --------------- ------------ -----------------
Umang Gupta...................................$ 165,000(2) -- $ 165,000(2) $ --
Andrew Hamer.................................. 52,300(3) -- 52,300(3) 62,815(4)
Jeffrey Kraatz................................ 71,000(5) -- 71,000(5) 63,593(6)
Krishna Khadloya.............................. 50,600(3) -- 50,600(3) 49,319(7)
Eric Stokesberry ............................. 49,200(3) -- 49,200(3) 51,194(8)
- ------------
(1) Calculated based on the termination in connection with a change of control
taking place as of September 30, 2008, the last day of our most recent
fiscal year; the closing price of $13.25 per share is used which was the
closing price of Keynote common stock on September 30, 2008, the last
trading day of our most recent fiscal year.
(2) Reflects continued base salary for 6 months following termination.
(3) Reflects continued base salary for 3 months following termination.
(4) Reflects value of 100% acceleration of unvested options to purchase 52,085
shares of common stock if Mr. Hamer is not the Chief Financial Officer of
the combined company following the change of control.
(5) Reflects continued base salary for 3 months plus quarterly incentive
compensation as averaged over the previous year, following termination.
(6) Reflects value of 100% acceleration of unvested options to purchase 74,480
shares of common stock and 25% acceleration of unvested options to purchase
5,000 shares of common stock.
(7) Reflects value of 100% acceleration of unvested options to purchase 31,951
shares of common stock and 25% acceleration of unvested options to purchase
5,000 shares of common stock.
(8) Reflects value of 100% acceleration of unvested options to purchase 39,169
shares of common stock and 25% acceleration of unvested options to purchase
3,125 shares of common stock.
Limitations on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits Keynote to a deduction
for federal income tax purposes of no more than $1 million of compensation paid
to our Chief Executive Officer, our Chief Financial Officer and the next three
most highly compensated executive officers in a taxable year. Compensation above
$1 million may be deducted if it is "performance-based compensation" within the
meaning of the Code. The Compensation Committee has considered the requirements
of Section 162(m) and believes that stock option grants made to our Chief
Executive Officer, our Chief Financial Officer and other applicable officers
satisfy the requirements for "performance-based compensation" and are,
therefore, exempt from the limitations on deductibility. However, deductibility
is not the sole factor used by the Compensation Committee in ascertaining
appropriate levels or manner of compensation and corporate objectives may not
necessarily align with the requirements for full deductibility under Section
162(m). Accordingly, we may enter into compensation arrangements under which
payments are not deductible under Section 162(m). The Compensation Committee's
present intention is to comply with Section 162(m) unless the Compensation
Committee believes that these requirements are not in the best interest of
Keynote or its stockholders.
26
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table presents compensation information for the fiscal year
ending September 30, 2008 and 2007 paid or accrued to our Chief Executive
Officer, Chief Financial Officer and our three other most highly compensated
executive officers who were serving as executive officers as of September 30,
2008 (the "named executive officers").
Non-Equity
Incentive
Fiscal Plan All Other
Name and Principal Position Year Salary Option Awards(1) Compensation Compensation(2) Total
- --------------------------- ---- ------ ---------------- ------------ --------------- -----
Umang Gupta
Chief Executive Officer 2008 $ 330,000 $817,673 $225,024 $ 2,893 $1,375,590
2007 300,020 879,435 293,710 2,566 1,475,711
Andrew Hamer
Vice President of Finance and 2008 206,773 132,273 58,840 2,475 400,361
Chief Financial Officer 2007 201,500 151,309 45,134 2,366 400,309
Jeffrey Kraatz
Senior Vice President, Worldwide 2008 218,750 167,392 33,726 2,515 422,383
Sales and Services 2007 162,500 116,501 82,828 2,201 364,030
Krishna Khadloya 2008 193,662 117,672 59,304 444 373,082
Vice President of Engineering 2007 182,700 108,899 30,816 333 322,748
Eric Stokesberry
Vice President of Operations 2008 192,231 119,078 29,793 2,408 343,510
2007 182,700 106,741 25,650 318 315,409
- --------
(1) The amounts reflect the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended September 30, 2008, in
accordance with FAS 123(R), of stock option awards issued pursuant to the
1999 Equity Incentive Plan and thus include amounts from outstanding stock
option awards granted during and prior to fiscal 2007. Assumptions used in
the calculation of these amounts are included in the notes to our audited
consolidated financial statements for the fiscal year ended September 30,
2008, as included in our Annual Report on Form 10-K. The amounts shown
disregard estimated forfeitures related to service-based vesting
conditions. These amounts reflect Keynote's accounting expense for these
awards, and do not correspond to the actual value that may be recognized
by the named executive officer.
(2) The amounts disclosed in the All Other Compensation column consist of
Keynote's matching contributions under our 401(k) plan and 2007 long-term
disability insurance premium Keynote paid for the officers.
Grants of Plan-Based Awards
The following table presents the grants made to each of our named
executive officers:
Estimated Future Payouts Under Non-
Equity Incentive Plan Awards(1) Number of Exercise Price Grant Date
Shares of Option Fair Value
Threshold Target Maximum Underlying Awards of Option
Name Grant Date ($) ($) ($) Options ($/Share) Awards ($)
Umang Gupta 11/06/07 $0 $198,000 $360,000 400,000 (2) $14.99 $1,971,278
Andrew Hamer 07/07/08 $0 $75,000 $150,000 6,250 (3) $12.65 $24,942
Jeffrey Kraatz 07/07/08 $0 $175,000 - 20,000 (3) $12.65 $79,815
Krishna Khadloya 07/07/08 $0 $175,000 - 20,000 (3) $12.65 $79,815
Eric Stokesberry 07/07/08 $0 57,000 - 12,500 (3) $12.65 $49,884
(1) Represents bonuses payable pursuant to the bonus plans for fiscal 2008
described in "Compensation Discussion and Analysis.
(2) Shares vest monthly over two years beginning December 7, 2007.
(3) Option is exercisable as to (i) 25% of the total shares as of April 1,
2008, the first anniversary date after the grant date, and (ii) 2.083% of
the total number of shares each month thereafter. The option has a term of
10 years and is subject to acceleration as described under "Severance and
Other Change of Control Arrangements."
27
2008 Outstanding Equity Awards at Fiscal Year-End
The table below summarizes outstanding equity awards held by each of
our named executive officers at September 30, 2008:
Number of
Securities
Number of Securities Underlying
Underlying Unexercised Option
Unexercised Options Options Exercise Option
(#) (#) Price Expiration
Name Exercisable (1) Unexercisable ($) Date
Umang Gupta 300,000 0 $70.00 01/17/2010
350,000 0 7.52 11/12/2011
500,000 0 11.68 02/03/2016
149,999(2) 250,001 14.99 11/06/2017
Andrew Hamer 38,355 9,375 11.61 06/20/2015
49,999 25,001 12.85 01/01/2016
1,041 11,459 10.31 07/01/2016
0 6,250 12.65 07/07/2018
Jeffrey Kraatz 30,000 10,000 12.98 09/01/2015
39,270 25,730 11.00 04/04/2016
21,250 38,750 13.42 04/01/2017
0 20,000 12.65 07/07/2018
Krishna Khadloya 40,000 0 10.95 07/01/2011
15,000 0 7.52 11/12/2011
12,500 0 7.27 07/01/2012
10,000 0 10.73 07/18/2013
15,000 0 13.01 07/16/2014
38,333 1,667 12.76 11/16/2014
11,874 3,126 11.98 07/01/2015
30,208 19,792 11.00 04/04/2016
0 7,366 13.43 08/03/2017
Eric Stokesberry 12,500 0 1.60 02/26/2009
7,500 0 8.00 06/28/2009
40,500 0 7.52 11/12/2011
12,500 0 7.27 07/01/2012
10,000 0 10.73 07/18/2013
15,000 0 13.01 07/16/2014
38,333 1,667 12.76 11/16/2014
11,874 3,126 11.98 07/01/2015
30,208 19,792 11.00 04/04/2016
5,416 14,584 13.43 08/03/2017
0 12,500 12.65 07/07/2018
(1) Unless otherwise noted, all options vest as to 25% of the shares of common
stock underlying it on the first anniversary from the date of grant and as
to 2.0833%of the underlying shares monthly thereafter until fully vested.
(2) Vests as to 4.1667% of the shares of common stock underlying it on a
monthly basis after the date of grant until fully-vested.
28
2008 Option Exercises
The table below summarizes the options exercised by each of our named
executive officers for the fiscal year ended September 30, 2008.
Number of shares
acquired on Value realized on
Name exercise exercise
Umang Gupta 350,000 $1,679,324
Andrew Hamer 14,770 55,938
Equity Compensation Plans
As of September 30, 2008, we maintained our 1999 Equity Incentive Plan
and 1999 Employee Stock Purchase Plan, both of which were approved by our
stockholders. The following table information about equity awards under those
plans as of September 30, 2008:
(a) (b) (c)
Number of Shares
Remaining Available
for Equity
Number of Shares to Compensation Plans
be Issued Upon Weighted-Average (Excluding Shares
Exercise of Exercise Price of Reflected in Column
Plan Category Outstanding Options Outstanding Options (a))
- --------------------- --------------------- --------------------- ----------------------
Equity compensation
plans approved by
stockholders 5,920,597 $14.68 562,765(1)
Total 5,920,597 14.68 562,765
(1) Of these, 323,750 shares remained available for grant under the 1999
Equity Incentive Plan. There were 450,610 shares that remained
available for grant under the 1999 Employee Stock Purchase Plan. All
of the shares available for grant under the 1999 Equity Incentive Plan
may be issued as restricted stock.
29
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of Keynote has
reviewed and discussed the Compensation Discussion and Analysis required by Item
402(b) of Regulation S-K with management and, based on such review and
discussions, the Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy Statement.
COMPENSATION COMMITTEE
Jennifer Bolt
David Cowan
Deborah Rieman
30
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than the compensation arrangements that are described above in
"Director Compensation" and "Executive Compensation", since October 1, 2007,
there has not been, nor is there currently proposed, any transaction or series
of similar transactions to which we were or will be a party in which the amount
involved exceeds $120,000 and in which any director, executive officer, holder
of more than 5% of our common stock or any member of their immediate family had
or will have a direct or indirect material interest.
The charter of our audit committee adopted by our Board of Directors
require that any transaction with a related party, other than compensation
related matters, must be reviewed and approved or ratified, by our audit
committee. The committee has not yet adopted policies or procedures for review
of, or standards for approval of, these transactions.
STOCKHOLDER PROPOSALS FOR THE 2010 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at our 2010 Annual
Meeting of Stockholders and included in our proxy statement and form of proxy
relating to the meeting, pursuant to Rule 14a-8 under the Exchange Act, must be
received by us at our principal executive offices not later than the close of
business on September 23, 2010, which is 120 days prior to the first anniversary
of the date this proxy statement was released to shareholders. If the date of
next year's annual meeting is changed by more than 30 days before or after the
anniversary date of this year's annual meeting, the deadline for inclusion of
proposals in our proxy statement will instead be a reasonable time before we
begin to print and mail our proxy materials. Such proposals also will need to
comply with SEC regulations under Rule 14a-8 regarding the inclusion of
stockholder proposals in company-sponsored proxy materials. In addition to
submitting a proposal pursuant to Rule 14a-8, Keynote's bylaws provide that for
a stockholder proposal to be timely for an annual meeting, it must be received
not later than the close of business on the seventy-fifth (75th) day nor earlier
than the close of business on the one hundred fifth (105th) day prior to the
first anniversary of the preceding year's annual meeting. To be timely for the
2010 Annual Meeting of Stockholders, a stockholder's notice must be delivered or
mailed to and received by Keynote's Secretary at the principal executive offices
of Keynote between December 14, 2009 and November 14, 2009; provided, however,
that, in the event that the date of the annual meeting is more than thirty days
before or more than sixty days after such anniversary date, proposals by the
stockholder must be so delivered not earlier than the close of business on the
tenth day following the day on which public announcement of the date of such
meeting is first made. Such proposals must include information on the nominees
for election and the business to be brought before the meeting. Our bylaws
provide that such notice must also contain information concerning the
stockholder submitting the proposals, such as its name and address, the number
and class of shares of our capital stock beneficially owned by such stockholder
and any material interest that such stockholder has in the business proposed to
be brought before the meeting. We reserve the right to reject, rule out of
order, or take other appropriate action with respect to any proposals that do
not comply with these and other applicable requirements, including conditions
established by the Securities and Exchange Commission. If the stockholder does
not also comply with the requirements of Rule 14a-4(c)(2) under the Securities
Exchange Act of 1934, as amended, we may exercise discretionary voting authority
under proxies that we solicit to vote in accordance with our best judgment on
any such stockholder proposal or nomination.
COMPLIANCE UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Securities Exchange Act of 1934, as amended, requires
our directors and officers, and persons who own more than 10% of our common
stock to file initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission and the Nasdaq Global Market. Such
persons are required by Securities and Exchange Commission regulations to
furnish us with copies of all Section 16(a) forms that they file.
Based solely on our review of the copies of such forms furnished to us and
written representations from our executive officers and directors, we found the
following filing was late or missing this year:
Mr. Cowan failed to file a Form 4 related to an acquisition of 9,805
shares of common stock through the winding down of an exchange fund.
OTHER BUSINESS
We know of no other matters that will be presented for consideration at the
Annual Meeting. If any other matters properly come before the Annual Meeting, it
is the intention of the persons named in the enclosed form of Proxy and voting
instructions to vote the shares they represent in accordance with the Board of
Directors' recommendation. Discretionary authority with respect to such other
matters is granted by the execution of the enclosed Proxy.
Whether or not you plan to attend, to assure your representation at the
meeting, please submit your Proxy and voting instructions over the Internet, by
telephone, or mark, date, sign and promptly return the accompanying proxy in the
enclosed postage-paid envelope so that your shares may be represented at the
meeting.
31
Annex A
KEYNOTE SYSTEMS, INC.
1999 EQUITY INCENTIVE PLAN
As Adopted June 28, 1999 and
Amended on September 22, 1999, March 25, 2003, March 23, 2006 and January 2009.
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and
18, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 5,000,000 Shares plus Shares that are subject to:
(a) issuance upon exercise of an Option but cease to be subject to such Option
for any reason other than exercise of such Option; (b) an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price; and (c) an Award that otherwise terminates without Shares being
issued. In addition, any authorized shares not issued or subject to outstanding
grants under the Keynote Systems, Inc. 1996 Stock Option Plan and the 1999 Stock
Option Plan (the "Prior Plans") on the Effective Date (as defined below) and any
shares issued under the Prior Plans that are forfeited or repurchased by the
Company or that are issuable upon exercise of options granted pursuant to the
Prior Plans that expire or become unexercisable for any reason without having
been exercised in full, will no longer be available for grant and issuance under
the Prior Plans, but will be available for grant and issuance under this Plan.
No more than 20,000,000 shares shall qualify as ISOs (as defined in Section 5
below). At all times the Company shall reserve and keep available a sufficient
number of Shares as shall be required to satisfy the requirements of all
outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 1,000,000 Shares in
any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 2,000,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 9 hereof, and subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Except
for automatic grants to Outside Directors pursuant to Section 9 hereof, the
Committee will have the authority to:
(a) construe and interpret this Plan, any Award
Agreement and any other agreement or document
executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and
regulations relating to this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other
consideration subject to Awards;
(f) determine whether Awards will be granted singly,
in combination with, in tandem with, in replacement
of, or as alternatives to, other Awards under this
Plan or any other incentive or compensation plan of
the Company or any Parent or Subsidiary of the
Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment
of Awards;
(i) correct any defect, supply any omission or
reconcile any inconsistency in this Plan, any Award
or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or
advisable for the administration of this Plan.
4.2 Committee Discretion. Except for automatic grants to
Outside Directors pursuant to Section 9 hereof, any determination made by the
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("Stock Option Agreement"), and, except as otherwise
required by the terms of Section 9 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
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5.2 Date of Grant. The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the
times or upon the events determined by the Committee as set forth in the Stock
Option Agreement governing such Option; provided, however, that no Option will
be exercisable after the expiration of ten (10) years from the date the Option
is granted; and provided further that no ISO granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary of
the Company ("Ten Percent Stockholder") will be exercisable after the expiration
of five (5) years from the date the ISO is granted. The Committee also may
provide for Options to become exercisable at one time or from time to time,
periodically or otherwise, in such number of Shares or percentage of Shares as
the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and will not be less than
100% of the Fair Market Value of the Shares on the date of grant; provided that
the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be
less than 110% of the Fair Market Value of the Shares on the date of grant.
Payment for the Shares purchased may be made in accordance with Section 8 of
this Plan.
5.5 Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:
(a) If the Participant is Terminated for any reason
except death or Disability, then the Participant may
exercise such Participant's Options only to the
extent that such Options would have been exercisable
upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or
longer time period not exceeding five (5) years as
may be determined by the Committee, with any exercise
beyond three (3) months after the Termination Date
deemed to be an NQSO), but in any event, no later
than the expiration date of the Options.
(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant
dies within three (3) months after a Termination
other than for Cause or because of Participant's
Disability), then Participant's Options may be
exercised only to the extent that such Options would
have been exercisable by Participant on the
Termination Date and must be exercised by Participant
(or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the
Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be
determined by the Committee, with any such exercise
beyond (a) three (3) months after the Termination
Date when the Termination is for any reason other
than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when
the Termination is for Participant's death or
Disability, deemed to be an NQSO), but in any event
no later than the expiration date of the Options.
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(c) Notwithstanding the provisions in paragraph
5.6(a) above, if a Participant is terminated for
Cause, neither the Participant, the Participant's
estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with
respect to any Shares whatsoever, after termination
of service, whether or not after termination of
service the Participant may receive payment from the
Company or Subsidiary for vacation pay, for services
rendered prior to termination, for services rendered
for the day on which termination occurs, for salary
in lieu of notice, or for any other benefits. In
making such determination, the Board shall give the
Participant an opportunity to present to the Board
evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to
occur on the date when the Company dispatches notice
or advice to the Participant that his service is
terminated.
5.7 Limitations on Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISO are exercisable for the
first time by a Participant during any calendar year exceeds $100,000, then the
Options for the first $100,000 worth of Shares to become exercisable in such
calendar year will be ISO and the Options for the amount in excess of $100,000
that become exercisable in that calendar year will be NQSOs. In the event that
the Code or the regulations promulgated thereunder are amended after the
Effective Date of this Plan to provide for a different limit on the Fair Market
Value of Shares permitted to be subject to ISO, such different limit will be
automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Notwithstanding the foregoing, without
first obtaining the consent of stockholders, the Committee may not (a) reduce
the Exercise Price of outstanding Options or (b) grant in substitution for
cancelled Options (i) new Options having a lower Exercise Price, or (ii) other
Awards authorized under the Plan. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code.
5.10 No Disqualification. Notwithstanding any other provision
in this Plan, no term of this Plan relating to ISO will be interpreted, amended
or altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
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6.2 Purchase Price. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance Periods
may overlap and Participants may participate simultaneously with respect to
Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded
for past services already rendered to the Company, or any Parent or Subsidiary
of the Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that
will be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature, length
and starting date of any Performance Period for each Stock Bonus; (b) select
from among the Performance Factors to be used to measure the performance, if
any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events or
circumstances to avoid windfalls or hardships.
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7.3 Form of Payment. The earned portion of a Stock Bonus may
be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in the
form of cash or whole Shares or a combination thereof, either in a lump sum
payment or in installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to
the Participant;
(b) by surrender of shares that either: (1) have been
owned by Participant for more than six (6) months and
have been paid for within the meaning of SEC Rule 144
(and, if such shares were purchased from the Company
by use of a promissory note, such note has been fully
paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note
having such terms as may be approved by the Committee
and bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of
the Code; provided, however, that Participants who
are not employees or directors of the Company will
not be entitled to purchase Shares with a promissory
note unless the note is adequately secured by
collateral other than the Shares;
(d) by waiver of compensation due or accrued to the
Participant for services rendered;
(e) with respect only to purchases upon exercise of
an Option, and provided that a public market for the
Company's stock exists:
(1) through a "same day sale" commitment
from the Participant and a broker-dealer
that is a member of the National Association
of Securities Dealers (an "NASD Dealer")
whereby the Participant irrevocably elects
to exercise the Option and to sell a portion
of the Shares so purchased to pay for the
Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such
Shares to forward the Exercise Price
directly to the Company; or
(2) through a "margin" commitment from the
Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise
the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin
account as security for a loan from the NASD
Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to
forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.
9. GRANTS TO OUTSIDE DIRECTORS.
9.1 Types of Options and Shares. Options granted under this
Plan and subject to this Section 9 shall be NQSOs.
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9.2 Eligibility. Options subject to this Section 9
shall be granted only to Outside Directors.
9.3 Initial Grants. Each Outside Director who was a member of
the Board before the Effective Date will automatically be granted an Option for
50,000 Shares on the Effective Date, unless such Outside Director received a
grant of Options before the Effective Date. Each Outside Director who first
becomes a member of the Board on or after the Effective Date will automatically
be granted an Option for 60,000 Shares on the date such Outside Director first
becomes a member of the Board (in either case an "Initial Grant").
9.4 Additional Grants. Each Outside Director will be eligible
for additional Options (an "Additional Grant") at the sole discretion of the
Committee. No Outside Director shall receive Additional Grants during any fiscal
year covering, in the aggregate, in excess of 40,000 Shares, provided that any
Options received pursuant to Section 9.3 above shall not count against such
limit.
9.5 Vesting.
(a) The date an Outside Director receives an Initial
Grant is referred to in this Plan as the "Start Date"
for such Option. Each Initial Grant will vest as to
25% of the Shares on the earlier of the first
anniversary of the Start Date for such Initial Grant
or the first Annual Meeting of stockholders of the
Company following such Initial Grant, and as to
2.0833% of the Shares monthly thereafter until all of
the Shares are fully vested, so long as the Outside
Director continuously remains a director of the
Company.
(b) The Committee, in its sole discretion, may set
the vesting schedule of Additional Grants to Outside
Directors.
(c) In the event of a corporate transaction described
in Section 18.1, the vesting of all options granted
to Outside Directors pursuant to this Section 9 will
accelerate and such options will become exercisable
in full prior to the consummation of such event at
such times and on such conditions as the Committee
determines, and must be exercised, if at all, within
three months of the consummation of said event. Any
options not exercised within such three-month period
shall expire.
9.6 Exercise Price. The exercise price of an Option pursuant
to an Initial Grant or an Additional Grant shall be the Fair Market Value of the
Shares, at the time that the Option is granted.
10. WITHHOLDING TAXES.
10.1 Withholding Generally. Whenever Shares are to be issued
in satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
10.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
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11. TRANSFERABILITY.
11.1 Except as otherwise provided in this Section 11, Awards
granted under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.
11.2 All Awards other than NQSO's. All Awards other than
NQSO's shall be exercisable: (i) during the Participant's lifetime, only by (A)
the Participant, or (B) the Participant's guardian or legal representative; and
(ii) after Participant's death, by the legal representative of the Participant's
heirs or legatees.
11.3 NQSOs. Unless otherwise restricted by the Committee, an
NQSO shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES..
12.1 Voting and Dividends. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 Financial Statements. The Company will provide financial
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12.3 Restrictions on Shares. At the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the Award
Agreement a right to repurchase a portion of or all Unvested Shares held by a
Participant following such Participant's Termination at any time within ninety
(90) days after the later of Participant's Termination Date and the date
Participant purchases Shares under this Plan, for cash and/or cancellation of
purchase money indebtedness, at the Participant's Exercise Price or Purchase
Price, as the case may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
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14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance. Notwithstanding
any other provision in this Plan, the Company will have no obligation to issue
or deliver certificates for Shares under this Plan prior to: (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable; and/or (b) completion of any registration or other qualification
of such Shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company will be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
will have no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by Successor. Except
for automatic grants to Outside Directors pursuant to Section 9 hereof, in the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale, or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine. Notwithstanding anything in this Plan to the
contrary, the Committee may, in its sole discretion, provide that the vesting of
any or all Awards granted pursuant to this Plan will accelerate upon a
transaction described in this Section 18. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
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18.2 Other Treatment of Awards. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either; (a) granting an Award under this Plan in substitution
of such other company's award; or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed award could be applied to
an Award granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had applied
the rules of this Plan to such grant. In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (except that the Exercise Price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective
on the date on which the registration statement filed by the Company with the
SEC under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "Effective Date").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (c) in the event that initial stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares issued pursuant to any Awards shall be cancelled and any
purchase of Shares issued hereunder shall be rescinded; and (d) in the event
that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such increase
will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate on December 31, 2011. This Plan and all
agreements thereunder shall be governed by and construed in accordance with the
laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
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22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
the following meanings:
"Award" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the
signed written agreement between the Company and the Participant setting forth
the terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Cause" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Company" means Keynote Systems, Inc. or any successor
corporation.
"Disability" means a disability, whether temporary or
permanent, partial or total, as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price at which a holder of an
Option may purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a
share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of the
closing bid and asked prices on the date of determination as
reported in The Wall Street Journal;
(d) in the case of an Award made on the Effective Date, the
price per share at which shares of the Company's Common Stock
are initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with
the SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee
in good faith.
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"Family Member" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law of the Participant, including
any such person with such relationship to the Participant by
adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than
fifty percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or
the Participant own more than fifty percent of the voting
interest.
"Insider" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"Option" means an award of an option to purchase Shares
pursuant to Section 5.
"Outside Director" means a member of the Board who is not an
employee of the Company or any Parent, Subsidiary or Affiliate of the Company.
"Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"Participant" means a person who receives an Award under this
Plan.
"Performance Factors" means the factors selected by the
Committee from among the following measures to determine whether the performance
goals established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
12
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"Performance Period" means the period of service determined by
the Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"Plan" means this Keynote Systems, Inc. 1999 Equity
Incentive Plan, as amended from time to time.
"Restricted Stock Award" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock reserved
for issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"Termination" or "Terminated" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").
"Unvested Shares" means "Unvested Shares" as defined in the
Award Agreement.
"Vested Shares" means "Vested Shares" as defined in the Award
Agreement.
13
Annex B
KEYNOTE SYSTEMS, INC.
2009 EMPLOYEE STOCK PURCHASE PLAN
Amended and Restated by the Board on January 23, 2009
1. Establishment of Plan. Keynote Systems, Inc. (the "Company")
originally established the Company's Employee Stock Purchase Plan (this "Plan")
in 1999 and amended and restated the Plan in January 2009. The Plan provides for
the granting of options to purchase the Company's Common Stock to eligible
employees of the Company and its Participating Subsidiaries (as hereinafter
defined). For purposes of this Plan, "Parent Corporation" and "Subsidiary" shall
have the same meanings as "parent corporation" and "subsidiary corporation" in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code"). "Participating Subsidiaries" are Parent Corporations or
Subsidiaries that the Board of Directors of the Company (the "Board") designates
from time to time as corporations that shall participate in this Plan. The
Company intends this Plan to qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments to or replacements of such
Section), and this Plan shall be so construed. Any term not expressly defined in
this Plan but defined for purposes of Section 423 of the Code shall have the
same definition herein. A total of 400,000 shares of the Company's Common Stock
were reserved for issuance under this Plan when originally adopted. The
aggregate number of shares issued over the term of this Plan shall not exceed
4,000,000 shares. Such number shall be subject to adjustments effected in
accordance with Section 14 of this Plan.
2. Purpose. The purpose of this Plan is to provide eligible employees
of the Company and Participating Subsidiaries with a convenient means of
acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. Administration. This Plan shall be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the provisions of this Plan
and the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of this Plan shall be
determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary (10) days before the beginning of such Offering Period;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or less
in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries or who, as a result of being granted an option
under this Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
purposes.
5. Offering Dates. The offering periods of this Plan (each, an
"Offering Period") shall be of twenty-four (24) months duration commencing on
February 1 and August 1 of each year and ending on January 31 and July 31 of
each year. Each Offering Period shall consist of four (4) six month purchase
periods (individually, a "Purchase Period") during which payroll deductions of
the participants are accumulated under this Plan. The first Offering Period
shall consist of no more than five and no fewer than three Purchase Periods, any
of which may be greater or less than six months as determined by the Committee.
The first business day of each Offering Period is referred to as the "Offering
Date". The last business day of each Purchase Period is referred to as the
"Purchase Date".
6. Participation in this Plan. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's treasury department (the "Treasury Department") not
later than five (5) days before such Offering Date. Notwithstanding the
foregoing, the Committee may set a later time for filing the subscription
agreement authorizing payroll deductions for all eligible employees with respect
to a given Offering Period. An eligible employee who does not deliver a
subscription agreement to the Company by such date after becoming eligible to
participate in such Offering Period shall not participate in that Offering
Period or any subsequent Offering Period unless such employee enrolls in this
Plan by filing a subscription agreement with the Company not later than five (5)
days preceding a subsequent Offering Date. Once an employee becomes a
participant in an Offering Period, such employee will automatically participate
in the Offering Period commencing immediately following the last day of the
prior Offering Period unless the employee withdraws or is deemed to withdraw
from this Plan or terminates further participation in the Offering Period as set
forth in Section 11 below. Such participant is not required to file any
additional subscription agreement in order to continue participation in this
Plan.
7. Grant of Option on Enrollment. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock), provided, however, that the number of shares of the Company's . Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
maximum number of shares set by the Committee pursuant to Section 10(b) below
with respect to the applicable Purchase Date. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 8
below.
8. Purchase Price. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The Fair Market Value on the Offering Date; or
(b) The Fair Market Value on the Purchase Date.
For purposes of this Plan, the term "Fair Market Value" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of determination on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading;
2
(b) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination as reported in The Wall Street Journal; or
(c) if none of the foregoing is applicable, by the Board in good faith.
9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance
Of Shares.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 cash compensation,
including, but not limited to, base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions, provided, however, that
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday of the Offering
Period and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Company a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than fifteen (15) days
after the Company's receipt of the authorization and shall continue for the
remainder of the Offering Period unless changed as described below. Such change
in the rate of payroll deductions may be made at any time during an Offering
Period, but not more than one (1) change may be made effective during any
Purchase Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the Company a new
authorization for payroll deductions not later than fifteen (15) days before the
beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction percentage to
zero during an Offering Period by filing with the Company a request for
cessation of payroll deductions. Such reduction shall be effective beginning
with the next payroll period commencing more than fifteen (15) days after the
Company's receipt of the request and no further payroll deductions will be made
for the duration of the Offering Period. Payroll deductions credited to the
participant's account prior to the effective date of the request shall be used
to purchase shares of Common Stock of the Company in accordance with Section (e)
below. A participant may not resume making payroll deductions during the
Offering Period in which he or she reduced his or her payroll deductions to
zero.
(d) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
3
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have no
interest or voting right in shares covered by his or her option until such
option has been exercised.
10. Limitations on Shares to be Purchased.
(a) No participant shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than ten
(10) days prior to the commencement of any Purchase Period, the Committee may,
in its sole discretion, set a maximum number of shares which may be purchased by
any employee at any single Purchase Date (hereinafter the "Maximum Share
Amount"). Until otherwise determined by the Committee, there shall be no Maximum
Share Amount. If a new Maximum Share Amount is set, then all participants must
be notified of such Maximum Share Amount prior to the commencement of the next
Purchase Period. The Maximum Share Amount shall continue to apply with respect
to all succeeding Purchase Dates and Offering Periods unless revised by the
Committee as set forth above.
(c) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected.
(d) Any payroll deductions accumulated in a participant's account which
are not used to purchase stock due to the limitations in this Section 10 shall
be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. Withdrawal.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Company a written notice to that effect on
a form provided for such purpose. Such withdrawal may be elected at any time at
least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in this Plan shall terminate. In the event a participant voluntarily
elects to withdraw from this Plan, he or she may not resume his or her
participation in this Plan during the same Offering Period, but he or she may
participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
4
12. Termination of Employment. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee of the Company or of a Participating
Subsidiary, immediately terminates his or her participation in this Plan. In
such event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. Return of Payroll Deductions. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. Capital Changes. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except as
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The Committee may,
in the exercise of its sole discretion in such instances, declare that this Plan
shall terminate as of a date fixed by the Committee and give each participant
the right to purchase shares under this Plan prior to such termination. In the
event of (i) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders of
the Company or their relative stock holdings and the options under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all participants), (ii) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (iii)
the sale of all or substantially all of the assets of the Company or (iv) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction, the Plan will continue with
regard to Offering Periods that commenced prior to the closing of the proposed
transaction and shares will be purchased based on the Fair Market Value of the
surviving corporation's stock on each Purchase Date, unless the Board determines
the final Purchase Date under all then outstanding Offering Periods shall be
accelerated to an earlier date.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
5
15. Nonassignability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. Reports. Individual accounts will be maintained for each
participant in this Plan. Each participant shall receive promptly after the end
of each Purchase Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period or Offering Period, as the case may be.
17. Notice of Disposition. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "Notice Period"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. No Rights to Continued Employment. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. Equal Rights And Privileges. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company,
the Committee or the Board, be reformed to comply with the requirements of
Section 423; provided however, that Offering Periods in which participants of a
Participating Subsidiary participate who are all residents outside the United
States of America may have provisions inconsistent with Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Term; Stockholder Approval. This Plan shall continue until the
earlier to occur of (a) termination of this Plan by the Board (which termination
may be effected by the Board at any time), (b) issuance of all of the shares of
Common Stock reserved for issuance under the Plan, or (c) ten (10) years from
the date of adoption of this amended and restated Plan by the Board.
22. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under this Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
6
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. Amendment or Termination of this Plan. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to
the Plan as the Board determines to be advisable, if the continuation of the
Plan or any Offering Period would result in financial accounting treatment for
the Plan that is different from the financial accounting treatment in effect on
the date this Plan is adopted by the Board.
7
KEYNOTE SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
This proxy is solicited on behalf of the Board of Directors of Keynote
Systems, Inc.
The undersigned hereby appoints Umang Gupta and Andrew Hamer, or either
of them, as proxies, each with full power of substitution, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all shares of
common stock, $0.001 par value per share, of Keynote Systems, Inc. held of
record by the undersigned on January 15, 2009, at the Annual Meeting of
Stockholders to be held at the executive offices of Keynote Systems, Inc., in
San Mateo, California, on Friday, February 27, 2009 at 10:00 a.m. Pacific Time,
and at any adjournments or postponements thereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
ANNUAL MEETING OF STOCKHOLDERS OF
KEYNOTE SYSTEMS, INC.
February 27, 2009
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
SEVEN NOMINEES LISTED IN PROPOSAL NO. 1 AND VOTE FOR PROPOSAL NOS. 2, 3 AND 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
1. ELECTION OF DIRECTORS
|_| FOR ALL NOMINEES Nominees: o Umang Gupta
o David Cowan
o Deborah Rieman
o Mohan Gyani
o Raymond L. Ocampo Jr.
o Jennifer Bolt
o Charles M. Boesenberg
|_| WITHHOLD AUTHORITY FOR ALL NOMINEES
|_| FOR ALL EXCEPT (SEE INSTRUCTION BELOW)
Instruction: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee for which you wish
to withhold authority to vote, as shown here: o
2. APPROVAL OF AMENDMENTS TO THE 1999 EQUITY INCENTIVE PLAN TO EXTEND ITS TERM
UNTIL DECEMBER 31, 2011.
|_| FOR |_| AGAINST |_| ABSTAIN
3. APPROVAL OF AMENDMENTS TO THE 1999 EMPLOYEE STOCK PURCHASE PLAN TO EXTEND
ITS TERM BY TEN YEARS.
|_| FOR |_| AGAINST |_| ABSTAIN
4. RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS KEYNOTE SYSTEMS,
INC.'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2009.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. WHEN NO CHOICE IS INDICATED,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN PROPOSAL NO.
1 AND FOR PROPOSAL NOS. 2, 3 AND 4. In their discretion, the proxy holders are
authorized to vote upon such other business as may properly come before the
meeting or any adjournments or postponements thereof to the extent authorized by
Rule 14a-4(c) promulgated under the Securities Exchange Act of 1934, as amended.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
URGED TO COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE ANNUAL MEETING
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
Signature of Stockholder: _________ Date: _______ Signature of Stockholder: ____________ Date: __________
Note: This proxy must be signed exactly as the name appears hereon. If
shares are held jointly, each holder should sign. If signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If the signer is a partnership, please sign
full partnership name by authorized person, giving full title as such.